Similarly, the U. The year yield dipped below 1. It had reached 1. Flattening yield curves in developed markets this week may reflect concern, analysts say, that central banks will err if they tighten policy too early in the face of higher inflation that proves temporary. The Australian dollar rose about 0. The data prompted a spike in short-term yields. Global stock markets have rallied this week as fears about a stagflationary economy have been eased by forecast-beating corporate earnings in the United States.
Unexpectedly strong U. Retail sales rose 0. The dollar index initially firmed after the retail sales data, but then trended lower and was last down 0. The greenback was down 0. Bureau of Labor Statistics. Center for Strategic and International Studies. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile.
Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. US Economy Fiscal Policy. Table of Contents Expand. Table of Contents. Exchange Rates. Treasury Notes. Foreign Currency Reserves. How the Dollar Impacts the Economy. The Value of the Dollar Over Time. By Kimberly Amadeo. Learn about our editorial policies. Reviewed by Michael J Boyle. Michael Boyle is an experienced financial professional with more than 10 years working with financial planning, derivatives, equities, fixed income, project management, and analytics.
Since the U. When more money is created, the law of supply and demand kicks in, making existing money less valuable. Also, investors often seek out the highest yielding investments, meaning the highest interest rates. If the Fed cuts rates, U. Treasuries , which are bonds, tend to follow suit and their yields fall. With lower rates in the U. The result is a weakening of the dollar versus the currencies of the higher-yielding countries.
Inflation is the pace of rising prices in an economy. There is an inverse relationship between the U. Relatively speaking, higher inflation depreciates currency because inflation means that the cost of the goods and services are rising. Those goods then cost more for other nations to purchase. Rising prices can decrease demand. Conversely, imported goods become more attractive to consumers in the higher inflation country to purchase.
One of the ways a currency remains in demand is if the country exports products that other countries want to buy and demands payment in its own currency.
While the U. The U. Reserve currencies are used by nations across the world to purchase desired commodities, such as oil and gold. When sellers of these commodities demand payment in the reserve currency, an artificial demand for that currency is created, keeping it stronger than it might otherwise have been.
Similar concerns surround the idea that oil-producing nations will no longer demand payment in U. Any reduction in the artificial demand for U. Strong economies tend to have strong currencies. Weak economies tend to have weak currencies. Declining growth and corporate profits can cause investors to take their money elsewhere.
Reduced investor interest in a particular country can weaken its currency. As currency speculators see or anticipate the weakening, they can bet against the currency, causing it to weaken further. When prices for a key export product fall, currency can depreciate. For example, the Canadian dollar known as the loonie weakens when oil prices drop because oil is a major export product for Canada.
Nations are like people. Some of them spend more than they earn. This, as every good investor knows, is a bad idea because it produces debt.
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