Factors Effecting Currencies - Consumers

Consumers also have a strong impact on the value of the dollar. The goods become cheaper and more desirable as the dollar falls, however, it also makes consumers money worth comparatively less, creating pressure on their budgets. Yet, there are many factors that consumers do that affect the dollar’s purchasing power. This is how they do it:

Consumer savings

Saving refers to strategies of accumulating capital for future use by either not spending a part of one’s income or cutting down on certain costs. Saved money may be preserved as cash, put on a deposit account or invested in various financial instruments. When it comes to savings, American consumers are too reluctant. In actual fact, most families in the United States have a negative net value. The latest spike in the savings rate has occurred in the first half of the year, in April 2020, when it has reached its peak of 33.7 % during the COVID-19 pandemic. While this has contributed to a strong economy in the short-term, it means that the US is ill-equipped to support the economy in the long-term. Furthermore, the US is forced to import foreign savings since domestic savings are negative, which certainly harms the value of the dollar.

Gas prices

When gas prices rise, it can put a strain on the economy, affecting everything from consumer spending to the price of airline tickets. Moreover, gas is a fundamental part of transportation, which directly impacts households as they drive, but also businesses who operate in logistics and transportation industries around the world. If discretionary spending is hindered by higher gasoline costs, it can have an unpleasant effect throughout the broader economy. At the personal level, rising gas prices are leaving customers with less money to spend elsewhere, or worse, driving them to borrow money to sustain their living standards. Volatile gas prices have gotten a lot of public attention as the US national average price for a gallon of gasoline has swung from nearly $4 a gallon nationwide, to just under $1 in the beginning of the COVID-19 pandemic.

Consumer spending

Similarly, as the dollar can be influenced by too much spending, too little spending can also have a negative impact. Even a small downturn in consumer spending damages the economy. As it drops off, the economic development slows down. The changes in spending can cause either deflation or inflation. In case of slow spending, prices are falling down, causing deflation. The economy declines if weak consumer spending continues. On the contrary, too much spending can be damaging as well. If consumers demand exceeds manufacturers ability to provide the goods and services, prices increase, causing inflation to occur. As analysts report: maintaining the right balance is the key to minimize the harm to the dollar.

By Adil Maidanov | 13 October 2020 

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