The Weakened US Dollar

Chart of the Week for November 19-25, 2004

The U.S. dollar has been weakening versus major world currencies since early 2002. This depreciation in the strength of the dollar is often viewed negatively, however the weakness can be a strong contributor to the growth of our economy as reported by the Gross Domestic Product (GDP). One of the five factors used in calculating GDP is trade balance which is the difference between exports and imports. While the weaker dollar will decrease the purchasing power of foreign goods imported into the U.S., it will increase exports of U.S. goods and therefore contribute positively to the GDP. Additionally, as more sales are made overseas in stronger foreign currencies, they generate higher revenues when converted back into U.S. dollars. In turn these higher revenues increase profits and ultimately inventories in the U.S., another factor for the GDP.

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