It can be a mixed bag. A weakening dollar, while potentially beneficial for some sectors, generally leads to increased import costs, higher inflation, and potentially higher interest rates. This can impact consumers through increased prices on imported goods and potentially higher borrowing costs. However, it can also make American goods more attractive to foreign buyers, boosting exports and potentially stimulating economic growth.
On the negative side of the ledger a weak dollar can lead to increased import costs. As the US dollar buys less foreign currency it costs more to import goods from other countries. Consequently this can lead to higher consumer prices in a wide range of imported products potentially fueling inflation.
If a weaker dollar does lead to higher inflation the Federal Reserve might raise interest rates in an attempt to curb rising prices. This would make borrowing more expensive for consumers and business impacting everything from mortgages, car and small business loans.
Is overseas travel on your agenda? A weaker dollar means your money doesn't stretch as far as it used to and travel becomes costlier.
On the positive side of the ledger a weaker dollar makes exported goods and services cheaper for foreign buyers. Potentially this can increase export demand and boost the competitive edge for American businesses. If there is an increased demand for US exports the can lead to higher production, job creation and overall economic growth.
And just like foreign travel is costlier for Americans the opposite is true for foreign tourists. A weaker dollar means that overseas currencies are stronger relative to the dollar making travel here more affordable.
Bottom line? US debt already exceeds $36 trillion. The passage of the Big Beautiful Bill, at a minimum, is going to increase Federal debt by $3.3 trillion; raising the debt-to-GDP (gross domestic product) ratio from 124 percent today, raising concerns about long-term debt sustainability. The mounting annual deficits would rise to 6.9 percent of GDP from about 6.4 percent in 2024. Confidence in the US continues to erode.
Owing to our dominance in trade and global finance the dollar has been the world's reserve currency. More than half of the world's exports are denominated in dollars, 60 percent of all bank deposits are denominated in dollars and 70 percent of all international bonds are priced in US currency. And 57 percent of the world's currency reserves - assets held by central banks - are held in dollars. All of this is supported by confidence in the US economy, our financial markets and our legal system.
President Trump is changing all of this; further spreading uncertainty.
Presently, foreigners own $19 trillion in US equities, $7 trillion in Treasuries and $5 trillion miscellaneous US credit; and investors are beginning to realize they might be over-exposed to US assets and their trust is beginning to erode.
If global investors continue to trim their positions the dollar's value could come under sustained pressure as the US becomes a less attractive place to invest these days.
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