The dollar has fallen steadily since the beginning of 2017, following a sharp rise immediately after President Trump’s election.
For instance, the number of euros that can be obtained for one dollar has declined to the lowest level in more than a year. The dollar has also declined against the British pound, the Japanese yen and the Chinese renminbi.
Is that bad? It sounds bad.
The winners are the American companies that sell goods and services, like Caterpillar; Disney World or Facebook, as they can exchange their currencies for more dollars.
The losers are the average Americans who now must pay more dollars for foreign goods and services. As it seems, they are fact caught in the middle somehow, as they may benefit at work and suffer at the supermarket.
Why is the dollar losing value?
The dollar strengthened after the presidential election because investors expected Donald Trump and Republicans in the Congress to increase domestic growth by fulfilling their campaign promises to cut taxes and reduce regulations. Instead of doing that the actions of President Trump reflects little confidence that Mr. Trump will be able to deliver.
So we’re back where we started?
It is important to put the recent decline into a broader context. Over the last six years, the dollar is still up about 28 percent.
It started going up in 2011 as the American economy began to recover more quickly than the economies of the rest of the developed world. Domestic growth was still unsatisfying, but things were worse everywhere else. The United States was “the cleanest shirt in the dirty laundry basket,” said Jim Paulsen, chief investment strategist at the Leuthold Group, a Minneapolis investment firm.
There was also a rush into dollar-denominated assets. At the beginning of 2011, Mr. Paulsen noted recently, the interest rate on the benchmark 10-year Treasury note was a little lower than the available return on a portfolio of debt issued by other major nations, including Britain, Germany and Japan. By 2016, the Treasury rate was as much as five times as high as the global portfolio.
The rest of the world now appears to be doing a little better. The International Monetary Fund said in June that it was cutting its forecast for the growth of the United States economy, but stronger growth elsewhere would offset the impact on the world economy.
Could the United States push down the dollar?
Exchange rates are determined by open trading on financial markets. Some governments actively participate in those markets to influence the value of their currencies. Asa for The United States, in recent decades has mostly stayed on the sidelines.
Recent administrations have focused instead on pressing other nations to stay out of the market. The Bush and Obama administrations, for example, made progress in persuading China to allow the value of the renminbi to appreciate against the dollar.
The Trump administration has not yet articulated a consistent policy on these issues.