I just read an article in Bloomberg Business suggesting the Fed stop worrying about the strength of the dollar. In fact, a new report from Goldman Sachs Group Inc. suggests our U.S. currency poses little threat to the Fed’s inflation goals. This news challenges policymakers’ comments to the contrary and is a positive sign of an expanded monetary-policy divergence between the U.S., Europe, and Japan.
A strengthening dollar is one in which the U.S. dollar has increased in value compared to another currency. A weakening U.S. dollar is the opposite as it means the U.S. dollar has fallen in value compared to the other currency – making the U.S dollar buy less of the other currency.
At the heart of the Fed’s current debate is Inflation and how it could affect the timing of future interest-rate increases. Officials are now looking to normalize monetary policy after seven years of near-zero borrowing costs.
“The majority of the effects of a stronger dollar on import prices have already been realized,” New York-based analysts Zach Pandl and Elad Pashtan wrote in a note. “Inflation data to date appears to be more closely tracking a path with less dollar pass-through to core inflation” than implied by the Fed’s projections for consumer prices.
Higher interest rates in a country increase the value of that country’s currency relative to nations offering lower interest rates. Despite the fact that the Federal Reserve has maintained interest rates near zero, the U.S. dollar has enjoyed favorable exchange rates in relation to the currencies of most other nations. The U.S. dollar is still perceived as a safe haven in an economically uncertain world. This fact, more so than interest rates, inflation or other considerations, has proven to be the overriding and determining factor for the relative value of the U.S. dollar.
If you have been thinking of selling your home, now is the time to act while the strength of the dollar is nothing to worry about. If you reside in Montecito, Hope Ranch or any of Santa Barbara’s upscale communities, please call me at 805.886.9378 or email me at Cristal@montecito-estate.com. I promise to sell your property at top dollar and in record time!