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

(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.”

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

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