The lowly state of the U.S economy early in the year was partially caused by the almighty dollar, analysts say.
The value of the dollar surged 14% in
trade-weighted terms in the period from July 2014 through March 2015.
This made American-made goods and services more expensive around the world at a time when many other countries were also struggling to cope with slowing economies of their own.
As a result, U.S. exports declined 5% over the same 12-month period, the biggest year-over-year drop since late 2009 as the U.S. was emerging from the Great Recession.
Source: MarketWatch
A decline in U.S. corporate profits was also partially caused by the strong dollar which also spurred manufacturers to scale back production and hiring.
As exports were steeply lower in the first quarter, the U.S. economy is likely to show contraction when the government revises gross domestic product later in the month. Initially, the government had said the economy grew 0.2% in the first three months of the year. An unusually harsh winter was probably the biggest downer, but the strong dollar also played the role of villain.
However, the surge in the dollar appears to have paused, and the global
economy seems to be rebounding. The U.S.
trade picture could thus be brighter later in the year and a rebound in exports could also happen.
The
expectation that the Federal Reserve will raise interest rates later
this year, as well as a number of other factors, has pushed the dollar higher.
Some investors bought the greenback to benefit from the dollar’s appreciation. Others sought to invest in a U.S. economy that was growing faster than the rest of the world. And still others wanted a place to safely park their money in an uncertain world.
