U.S. Consumers Win on Strong Dollar, Weak Euro

Continued strength in the U.S. dollar and weakness in the euro expects to benefit U.S. consumers, who can buy more with their dollar-denominated paychecks.

A slew of new reports from economists at several investment banks, including Goldman Sachs and JPMorgan, indicate that lower prices are coming to many goods categories, particularly from goods imported from Europe and Asia. One report noted that clothing, which is the most imported category by far, could see prices fall in 2015 thanks to cheaper energy costs and a stronger dollar.

Continued strength in the U.S. dollar and weakness in the euro expects to benefit U.S. consumers, who can buy more with their dollar-denominated paychecks.

A slew of new reports from economists at several investment banks, including Goldman Sachs and JPMorgan, indicate that lower prices are coming to many goods categories, particularly from goods imported from Europe and Asia. One report noted that clothing, which is the most imported category by far, could see prices fall in 2015 thanks to cheaper energy costs and a stronger dollar.

The fall in clothes prices could bolster retailers, a note from Morgan Stanley noted. With lower prices on clothes, retailers could see faster sales as household buying power increases.

Electronics and automobiles, also imported from Asia, also expect to gain, thanks to accommodative monetary policies in Japan, South Korea, and China. Seeing inflation falling, the Chinese central bank has already announced interest rate cuts, while South Korea and Japan are adopting monetary policies that will attempt to stave off a fall in growth. Japan saw negative GDP growth in 2014, causing the Bank of Japan to increase its QE program by 10 to 20 trillion yen, or about $12.3 billion.

Euro Falls

The euro continues to make new lows, falling to $1.055 in Wednesday trading, the lowest level since March 2003. The currency’s depreciation is an expected result of the ECB’s decision to deploy a quantitative easing program, which is pushing the currency’s value lower.

At the same time, euro-denominated stocks continue to rise. The Euro Stoxx 50 has risen 16.3% year-to-date, while the German DAX is up over 18%.

Europe Trade Gains

Trade with Europe has risen steadily in recent months, and the trend expects to continue. In January, total imports from the EU rose 4.2% on a year-over-year basis, while exports to the EU rose 3.5% year-over-year.

Economists believe the rise in purchasing power in the United States could cause a rise in output in the European Union, driving growth higher in both regions. However, some economists warn that the strong dollar will only yield economic benefits if unemployment does not rise and exports to the rest of the world are not too adversely affected. Exports are roughly 13.5% of the United States’ GDP.

Some analysts also believe tourism to the European Union could grow in 2015, as a strong dollar lures Americans to the continent. The dollar is up 18% in 2015 and some economists have said the euro could fall below parity with the U.S. dollar as QE continues, meaning European prices for Americans will continue to fall.