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Uh oh. You’ve probably been reading the news lately and notice that the US dollar is gtting killed This sounds bad but is it? Well, yes and no. The best answer is “it depends”.

Of course, if you have a long position on the US dollar, then yes, obviously a weakening dollar definitely sucks. But fo’ other peeps, they think it’s schweet! that the dollar is weak.

You probably thinking “Huh?!”. Well let a brotha break it down fo’ ya….

First of all, when it comes to talking about currencies, what the heck does “strong” and “weak” mean anyway? Well check it playah, the words “strong” and “weak”, “strengthening” and “weakening”, “rising” and “falling” are all relative terms.

Say whaaaat? This means when the dollar is “weakening”, its value is falling when compared to another currency. A weak dollar will buy less units of a foreign currency than before. When the dollar is “strengthening”, its value is rising when compared to another currency. A strong dollar will buy more units of a foreign currency than before. Ya diiig??

What Happens When Dollar is Strong like Bull?

A strong dollar means US consumers (or what my boy Harry Potter calls ’em, “muggles” ) can buy more stuff made from other countries like uh David Beckham and Spice Girls posters from the UK. Americans could also travel to another country (with a weaker currency) for vacation or to buy that chateau for sale on the cheap.

It’s all gravy fo’ US consumers. But it ain’t for US exporters! If you’re trying to sell yo steez overseas, a strong dollar sucks. Fo’ example, if you trying to sell yo hot time machines in Japan, now it cost them mo’ yen to buy them suckas.

A strong dollar becomes mo’ expensive fo’ foreign consumers, so they’ll buy less US products. Since it takes more of a foreign currency to buy strong dollars, products priced in dollars are mo’ expensive when sold outside the US.

What Happens When Dollar is Weak like Kevin Federline?

Unlike the K-Fed, where he’ bad fo’ everybody, a weak dollar is good fo’ some peeps, and bad for others. When the dollar weakens against a foreign currency, prices of goods and services from that foreign country rise for US consumers. If you tryin’ to buy that pimped out flying carpet from India, it’s gonna cost you. It takes mo’ dollars to buy the same amount of foreign currency to buy stuff.

Americans will tend to buy less imported products because it’s mo’ expensive fo’ them and instead buy more stuff “made in the USA”. But what if you need to buy something that’s only made outside of the US? Well, this is when it sucks when the dollar is weak.

So why would you want a weak dollar? If you’re US exporter or foreign consumer of course! A weak dollar means US products are cheaper in foreign markets. Imagine if you’re a British tourist traveling to the US this summer. The GBP/USD rate is currently over 2.00 so when you fly across the pond, everything in the US is basically a 50% off sale! Bloody brilliant!

With a weak dollar, its takes less units of foreign currency to buy dollars to buy US goods. This is how consumers from other countries can buy US stuff with less money.

Strong Dollar

Weak Dollar

Pros

  • Consumer sees lower prices on foreign products/services.
  • Lower prices on foreign products/services help keep inflation low.
  • US consumers benefit when they travel to foreign countries.
  • US investors can purchase foreign stocks, bonds, real estate at "lower" prices.
  • US companies find it easier to sell goods in foreign markets.
  • US companies find less competitive pressure to keep prices low.
  • More foreign tourists can afford to visit the US.
  • Foreign investors can purchase US stocks, bonds, real estate at "lower" prices.

Cons

  • US companies find it harder to compete in foreign markets.
  • U.S. firms must compete with lower priced foreign goods.
  • Foreign tourists find it more expensive to visit US
  • More difficult for foreign investors to provide capital to U.S. in times of heavy U.S. borrowing.
  • Consumers face higher prices on foreign products/services.
  • Higher prices on foreign products contribute to higher cost-of-living.
  • U.S. consumers find traveling abroad more costly.
  • Tougher for U.S. companies and investors to expand into foreign markets.