The Upside and Downside to a Strong Dollar

by: Tom Lydon

Not even a mounting debt problem in the United States can keep the dollar from losing its status as an investors favorite these days. The dollar ETF is the world’s international reserve currency, offering shelter from a flailing yen and a fast-sinking euro.

Federal Reserve Chairman Ben Bernanke cautioned today that the U.S. debt situation cannot continue on as it has been. P. Parameswaran for Brisbane News reports that not even that problem can put a dent in the growing popularity of the U.S. dollar these days. The greenback has surged to four-year highs against the euro while foreign investors jostle to buy even more American debt.

But not everyone is rejoicing over the dollar’s newfound strength.

Scott Morrison for The Wall Street Journal reports that the stronger dollar and slumping euro could lead to a consumer spending slump in Europe and lower revenues for internet companies doing business overseas.

Companies that did well with a weaker U.S. dollar – for instance, Google (NASDAQ:GOOG), eBay (NASDAQ:EBAY) and Amazon (NASDAQ:AMZN) – are now threatened by the sharp rise seen against the euro. A stronger dollar means companies get less for their euros when they repatriate overseas revenue.

The dollar has strengthened about 16% versus the euro this year, reaching a rate of 1.1962 euros per dollar on Friday as concerns about euro-zone debt mounted, says Morrison.

  • PowerShares DB U.S. Dollar Index Bullish (NYSEARCA:UUP)

Tisha Guerrero contributed to this article.

Disclosure: None