The dollar is hitting record lows against the Euro and UK pound. What effect will this have on US stocks? Since US share prices are quoted in US$, does this mean that US stocks are now more attarctive to a german investor? Or does the weak dollar forecast trouble for stock prices, as companies have to pay higher prices (in dollars0 for raw materials on world markets? What does history say? Were periods of weakness (in the US$) times of rising prices in the stock market?
I already see one big effect-lots of europeans come over here now to buy stuff-an irish guy i met told me that retail prices here 9in the USA) are now about 50% of the retail in Ireland.
A week dollar does typically boost domestic manufacturing because it means American products will be cheaper.
A weak dollar can lead to inflation here, and that will be bad for the stock market. But if inflation is held in check, American companies will benefit from the cheapness of their exports, and that’s good for the stock market.
Actually I thought the dollar was up a bit this week. What happened?
[rant]
god dammit! Thanks to our selling ourselves out to Wal*Mart and their ilk, and being held over a barrel to keep our ballooning population on wheels, my country has become a cheap shopping destination. Any hope I have to visit Europe is pretty much dashed, unless I want to hostel it.
[/rant]
Tread softly on my head, for I am an economic lightweight – does this have anything to do with the U.S.'s rising debt-to-GDP ratio? Or not so much?
It sure does. When the United States is in debt, we must convince somebody to buy our treasuries. The more debt we have, the more treasuries we need to buy. By lowering the value of the dollar, we can make those treasuries more attractive to foreign investors. In fact, this tactic has been part of America’s economic strategy for a long time.
The problem with ralph124c’s question is that it supposes that there has been a movement in the $US which is unconnected to stock prices and might later have an effect on them. This is not so - they are simultaneously determined. The fall in the dollar tells us nothing about future stock prices.