Dollar Vs. Currencies of Broad Group of Trading Partners
After a multi-decade run of appreciation, the U.S. dollar has fallen in value by some 26 percent since 2002 against the currencies of a large group of major U.S. trading partners. The dollar spiked during the credit crisis of late 2008 and early 2009 as investors piled into safe U.S. Treasuries, only to resume its decline when the worst of the crisis passed. The weak dollar reflects the U.S. economy’s sluggish growth prospects relative to other countries where interest rates are higher. It also reflects expansionary monetary policies pursued by the Federal Reserve to stimulate the economy, i.e. policies to keep interest rates low, and it may reflect negative investor sentiment over high levels of deficit spending by the federal government. The weak dollar benefits U.S. exporters by making their wares cheaper for overseas buyers, but on the negative side, it contributes to inflationary pressures in markets that import U.S. goods, and it could be a harbinger of inflation in the U.S., already evident in gas and food prices. For commercial real estate, the weak dollar has stimulated demand for industrial properties by exporters, but if gas and food prices continue to rise, the weak dollar is likely to dampen core retail sales (which exclude gas and food) and, by extension, leasing activity in shopping centers. The weak dollar makes U.S. properties more affordable for overseas investors, which could add to the already-strong demand for Class A properties in primary, supply constrained markets – the niche most favored by these investors.