The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: mistymoney on April 21, 2025, 10:17:57 AM
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So - the dollar is weakening along witht he stock market.
What implications for cash and bonds does this have? I am assuming this will add to inflation woes. If in fact, we still buy stuff from other countries.
For things that we don't rely on imports, how will a falling dollar value affect us on american made stuff? That doesn't, for the sake of argument, rely on imported raw materials.
What can investors do?
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A falling dollar is in relation to foreign currencies. U.S. exports will be more attractive, not counting tariffs. Foreign investments will gain/hold value and dividend payments will be worth more to a U.S. investor. Imports into the U.S. will be more expensive.
Domestic inflation is what erodes buying power for all goods.
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Also, a weaker dollar contributes to inflation by making imported goods AND services more expensive.
In the absence of tariffs, a weaker dollar would have encouraged foreign demand that would compete with domestic demand, driving up domestic prices for domestically-produced items, but in our current case the tariffs have more than negated this effect.
Finally, a longer-term weakening trend in a currency, or a political policy of weakening one's own currency, causes investors to eventually demand higher real yields to offset their exposure to currency risk. High real yields act as a brake on the economy. Higher retail margins are required to exceed the cost/benefit ratio of the alternative to buying inventory: just buying bonds.