Jan 25, 2018

The pros and cons of a "weak" dollar

Treasury Secretary Steven Mnuchin rattled currency markets yesterday when he said “a weaker dollar is good" — a break in the habit of U.S. officials to publicly advocate for a "strong" dollar.

The facts
Expand chart
Data: U.S. Federal Reserve; Chart: Andrew Witherspoon / Axios
Why it matters

The dollar hit the lowest exchange mark in three years following Mnuchin's comments, after a slow drop over the past few months. While historically, U.S. Treasury Secretaries have spent more time praising a stronger dollar than a weaker dollar, both Mnuchin and President Trump have mentioned that a strong dollar can be harmful to the economy.

The breakdown
  • The strength or weakness of the dollar has the biggest impact on international trade.
  • The Federal Reserve's nominal broad index (used in the chart above) provides a weighted average of the dollar's foreign exchange values against the currencies of several major trade partners, including the Euro Area, Canada, Japan, Mexico, China, United Kingdom and others.
  • The strength of the dollar doesn't necessarily correlate to the state of the U.S. economy because it's always in comparison to the state of foreign economies. Even during the financial crisis of 2008, the U.S. dollar's exchange rate actually rose as it was still stronger by comparison to other countries.

Why a weak dollar could be good: It would make U.S. exports cheaper and easier to sell around the world. This is why Trump has often berated China for artificially keeping their currency "weak," in order to sell more goods at lower prices to foreign purchasers.

Why a weak dollar could be bad: The U.S. would have to pay more for imports making many goods more expensive for U.S. consumers. And as former Treasury Secretary Larry Summers wrote in the Financial Times, a weak dollar could lead to higher interest rates in the U.S. and currency wars with other countries as they compete to have the cheapest currencies.

Bottom line: today in Davos, Switzerland, Mnuchin clarified his dollar comments:

“There are benefits of where the dollar is and there are costs of where the dollar is ... I thought my comment on the dollar was actually quite clear ... It was balanced and consistent with what I said before, which is we are not concerned with where the dollar is in the short term.”
— Mnuchin in Davos, according to Bloomberg News
Expand chart
Data: U.S. Federal Reserve; Chart: Andrew Witherspoon / Axios

Go deeper

In photos: Protests over George Floyd's death grip Minneapolis

Protesters gather at Hennepin County Government Plaza on Thursday in Minneapolis, Minnesota.

Protests in response to the death of George Floyd, a black man who died shortly after a police encounter in Minneapolis, are ongoing as the nation waits to see if the officers involved will be charged with murder.

The state of play: Minnesota's governor on Thursday activated the state's national guard following violent outbreaks throughout the week.

Updated 3 hours ago - Health

World coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

New Zealand has a single novel coronavirus case after reporting a week of no new infections, the Ministry of Health confirmed on Friday local time.

By the numbers: Nearly 6 million people have tested positive for COVID-19 and over 2.3 million have recovered from the virus. Over 357,000 people have died globally. The U.S. has reported the most cases in the world with over 1.6 million.

Updated 4 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 8:30 p.m. ET: 5,803,416 — Total deaths: 359,791 — Total recoveries — 2,413,576Map.
  2. U.S.: Total confirmed cases as of 8:30 p.m. ET: 1,720,613 — Total deaths: 101,573 — Total recoveries: 399,991 — Total tested: 15,646,041Map.
  3. Public health: The mystery of coronavirus superspreaders.
  4. Congress: Pelosi slams McConnell on stimulus delay — Sen. Tim Kaine and wife test positive for coronavirus antibodies.
  5. World: Twitter slapped a fact-check label on a pair of months-old tweets from a Chinese government spokesperson that falsely suggested that the coronavirus originated in the U.S.
  6. 2020: The RNC has issued their proposed safety guidelines for its planned convention in Charlotte, North Carolina.
  7. Axios on HBO: Science fiction writers tell us how they see the coronavirus pandemic.
  8. 🏃‍♀️Sports: Boston Marathon canceled after initial postponement, asks runners to go virtual.
  9. What should I do? When you can be around others after contracting the coronavirus — Traveling, asthma, dishes, disinfectants and being contagiousMasks, lending books and self-isolatingExercise, laundry, what counts as soap — Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingHow to minimize your risk.
  10. Other resources: CDC on how to avoid the virus, what to do if you get it, the right mask to wear.

Subscribe to Mike Allen's Axios AM to follow our coronavirus coverage each morning from your inbox.