The US dollar has been trending strong throughout the beginning of 2015. So strong in fact that it’s proving to cause harm to exports as US products become more and more expensive around the world. So, a big question that’s starting to surface is whether or not the dollar will continue to rise throughout the rest of the year. Here’s my take…
The US Dollar Is Likely To See Declines by the End of the Year
When addressing the question, “Will the US dollar remain strong?” there are a few key factors that I feel are incredibly important to look into. First and foremost, the US dollar is a gauge of the US economy; so, we’ll have to look into economic factors. Other factors that play a key role are earnings reports, and in this case, the Federal Reserve.
The US Economy Is Throwing Red Flags in the Air
For the US dollar to continue to maintain the momentum we’ve seen, the economy is going to have to remain strong. However, there are a few major red flags that show the economy is headed into a road block…
- Consumer Spending – Looking at the data, it’s easy to see that consumer spending drives the United States economy. After all, consumer spending accounts for nearly 70% of US GDP. Unfortunately, this is where I’m seeing one of the biggest problems. The reality is that consumer spending in the US is dying down. As a matter of fact, the last report of consumer spending showed meager growth at best; clocking in at an increase of just 0.10%.
- US Jobs Data – In the beginning of the year, non-farm payroll reports were great. In both January and February, the United States created more jobs than analysts expected the country to. However, March wasn’t as great. As a matter of fact, in the month of March, the United States missed projections by nearly 50% when it comes to new jobs; showing a dangerous slowing trend in job creation.
- Exports – As a result of the strong dollar, US exports are starting to struggle. As a matter of fact, major companies are blaming the strong dollar for missed revenue projections.
Corporate Earnings Reports
Another factor that investors pay close attention to when gauging whether or not the USD will grow is corporate earnings reports. The simple fact is that if corporations are doing well, the economy will grow and so too will the currency. Unfortunately, that’s not the case at the moment. While we have seen a few overwhelmingly positive earnings reports this season, most of what we’ve seen has been far less than impressive. As mentioned above, the declines are being blamed on the strong United States dollar.
Finally, the third strike to the US dollar’s growth in 2015 is the Federal Reserve. Currently, the Federal Reserve has incredibly low interest rates. However, there have been several announcements from the Fed that insinuate plans to increase the interest rate in the later part of the year. Most experts are expecting this increase to happen either in June or in September. Nonetheless, when the interest rate is increased, investors will be forced to rethink some of the risky moves they’ve been making in the market. As a result, we should see a correction in the market that bleeds into the USD.
All in all, I think that the United States dollar will remain relatively strong until June. While economic factors will surely weigh on the currency in the later end of the year, I’m expecting the start of the decline in the currency to happen when the Federal Reserve announces it’s new, increased interest rates.
What Do You Think?
Is The USD likely to remain strong throughout the year 2015? Let us know your opinion in the comments below!