Dollar's Weakness Is a Good-News Story About Global Growth

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(Bloomberg) -- Want to know why the dollar’s been weaker this year? Follow the growth forecasts, advises Renaissance Macro LLC head of U.S. economics Neil Dutta.

“Changes in growth expectations are a meaningful driver of currency exchange rates,” he wrote in a note to clients Monday. “The USD has tended to depreciate more against those countries that have seen larger upward revisions to 2017 GDP estimates, according to Bloomberg.”

U.S. annual growth estimates for 2017 have oscillated in a minute range of 2.1 to 2.3 percent, prompting Dutta to conclude that the dollar’s weakness “is a function of stronger growth overseas.”

This has three noteworthy implications for the U.S. economy and markets, he says:

  • A narrower U.S. trade deficit
  • Higher U.S. profits, especially for more foreign-oriented firms in goods-producing industries
  • A delayed boost to core consumer price inflation

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