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What Is The Strength Of The Us Dollar

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This paper will analyze the relationship between stock performance in the USA and strength of the US dollar. Because equity is an important part of financial market in the USA, performance of stock implies the status of US economy. Investors abroad will make investment decisions based on US stock market performance. Many domestic investors invest in the stock market for children’s education funds and their retirement funds. It is important to examine the US stock market so stockholders are confident about their investment. Consequently, companies can attract more investors to fund their profitable projects to grow bigger, which in turn, makes US economy more competitive in the global market. Strength of the US dollar, similar to US stock performance, is another indicator of economic status. It changes over time, depending on different factors such as domestic and foreign monetary policies, business expectations and current account balance. Usually a country with a healthy economy has a strong currency with great purchasing power. US Investors care about the strength of the US dollar as foreign exchange trading and investing in …show more content…

A possible hypothesis would be that strengthening of US dollar will enhance stock market performance. Essentially, stock price will be determined by supply and demand. When US currency appreciates, it denotes a strong foundation and performance of the economy. Confident about the economy, investors will demand more stocks compared to they would in a recession. Consequently, stock price will increase as supply stays constant but demand grows. When a currency depreciates because of large current account deficits and high inflation rate, investors will prefer investing in foreign assets to invest in domestic assets. As a result, stock market is likely to crash if investors continue to take their money

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