Encouraged by U.S. growth and the prospect of higher interest rates, investors have sent the dollar surging—a welcome development after years of decline on the heels of loose Federal Reserve monetary policy. It's also made it more affordable for Americans to pack their bags and travel the world.
But the renewed power of the dollar may wind up hurting the U.S. economy. A soaring currency—the U.S. Dollar Index spiked to its highest in 12 years this week—isn't necessarily good for trade or manufacturers. The greenback's sudden strength is disruptive to U.S. exports, and companies that rely on sales abroad.
To be certain, the strong dollar is beneficial to the U.S. economy in many respects, by restraining inflation and making foreign goods cheaper for American buyers. It's also a reflection of an economic outlook that is far brighter than other major developed economies, many of which are either growing sluggishly or flirting with outright recession.
Yet conversely, a pricier dollar also makes it more expensive for foreign countries to buy U.S. products. That impact is already being felt: November numbers from the Commerce Department showed exports dipping from the previous month.
The sinking euro, which is hovering at its lowest level in nearly a decade, helped send exports to the European Union plunging by 7.7 percent. Meanwhile, exports to China slipped 3.9 percent.