Question

Under what conditions is a strong US dollar better for the US economy than a weak dollar and vice-versa?

Answer 1

• As we all know the appreciation of a currency is when the currency is doing better than the other currency in terms of purchasing power
• So for the US dollar, the following conditions must be satisfied to be a stronger currency-

1. Market forces-here market forces mean demand and supply in the market.

When there is more export from the US then there will be more demand for for the currency and that will cause strongness if the currency due to more transaction.

Also in the bond market, the government issue bond to the foreign investor in the US dollar and it also helps to increase the value of the US Dollar.

2. Market psychology- it is a very crucial and important factor that is often ignored.

suppose a situation, in US stock market if there the market is bullish then people will invest more and more money and this will cause the increase in the value of the dollar and its transaction which makes the currency more stronger.

3.more availability and use across the world- as we all know that the US dollar is the most transacted currency in the world and the reason is that it is performing very well as compared to many countries currency and this also makes the US dollar more strong as compared to other currency like Indian rupees, Japanese yen, etc.

Similarly, weakness is when the US DOLLAR is performing opposite cases as described above.