what does a strong weak dollar mean? how can I see if its strong or weak?
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The dollar is strong or weak against other currencies, and other currencies are also strong or weak against other currencies. Currency is exchanged on an open market, kind of like stocks, and so the relative values are constantly in flux. Strong means your currency buys more foreign currency, weak means it buys less foreign currency. Then we get into real exchange rates and things get more complicated, but that’s the basic idea.
So you would think having a strong dollar is always good and a weak dollar is always bad, because strong is good and weak is weak. Not necessarily.
The strength of the dollar comes into play when you’re buying from or selling to a foreign market. When you sell to a foreign market, you pay all your costs (salaries for your workers, etc.) in your home currency and make all your revenue in the foreign currency. If you have a weak currency, like China, you can use this to your advantage: all your costs are in cheap yuan and all your revenues are in expensive dollars, so you can sell your products relatively cheap and still make a tidy profit. This is one reason U.S. businesses can have a hard time competing against Chinese imports.
Meanwhile, if you have a very strong currency, like Japan, you’re paying all your costs in expensive yen and taking in your revenues in less valuable dollars, eating into your profits. This is why you see Japanese auto manufacturers starting to open plants in the U.S. for the U.S. market; not only is shipping less expensive but they are getting hammered on the exchange rate.
With global supply chains meaning you’re buying parts from one country to make it in another country to sell it to a third country, you don’t necessarily want super weak currency either. If you ask 10 economists what the ideal currency exchange rate is you’ll likely get 12 answers. So while the idea is rather simple, the application can get complex.
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