Weekly Economic Commentary

Most people typically don’t think about exchange rates unless they are heading out of the country. Exchange rates have been very much top-of-mind during the past year. The U.S. dollar has strengthened, while many other leading world currencies have fallen. The new equilibrium has the potential to affect economic growth and inflation around the world. But the relationship among currencies, prices and trade is not a clear one. Imports and exports may not adjust fully or quickly to changes in relative prices, and results for one country depend on the actions and reactions of many others. Those nations hoping to devalue their currencies and ship their way to better health may ultimately be disappointed. This commentary discusses the current state of affairs when exchange rates affect a country's trade flows.