The US dollar is strengthening. Here's what's driving the rally and what it means for Americans

Washington CNN —

The powerful US dollar showed some dynamism last week, a positive sign for Americans' purchasing power.

The U.S. dollar index, which measures the currency's strength against six of its peers, closed Tuesday at 106.26, its highest level since early November. The remarkable strength of the US economy is one of the main reasons for the dollar's rise over the past week.

The latest retail spending data released Tuesday showed Americans continuing to open their wallets, and other figures released earlier this month show the U.S. job market remains strong and the country's manufacturing sector is expanding.

Federal Reserve officials have said the economy's resilience allows them to keep rates steady at their highest level in 23 years while they await further evidence that inflation is heading toward their 2% target. The central bank cuts rates if it is clear that the economy is contracting, because it is also responsible for maximizing employment in addition to stabilizing prices.

But there are signs that the cooling of inflation has stalled. March was the third consecutive month of higher-than-expected inflation figures. Inflation as a whole has recently been pushed higher by rising gasoline prices and persistently high housing costs.

Fed Governor Michelle Bowman suggested in a speech Wednesday that the central bank may need to raise rates again or push back the first rate cut further, as there is a lot of activity in financial markets and a continued growth that we would not have expected if the policy had been stronger. sufficiently tight.

But the strength of the U.S. economy isn't the only thing driving the U.S. dollar higher.

Before Bell speaks with Claudio Irigoyen, head of global economics at Bank of America, about the rising dollar and what it means for Americans and the world.

This interview has been edited for length and clarity.

What's fueling the dollar's rise besides the resilience of the U.S. economy?

Claudio Irigoyen: The dollar is strengthening for several reasons. It's not just the Fed declaring that it won't cut rates anytime soon that has pushed the markets to revise their prices. It is also that the American economy is doing better than the rest of the main regional blocs, including the euro zone. Most of the growth surprises continue to come from the United States.

It's also because every time there is a shock on the geopolitical level, there is this flight towards quality components, which benefits the dollar. And if incidents continue to occur in the Middle East, these shocks will cause energy prices to spike and have a proportionately greater effect on Europe and Japan, but not as much on the United States, which is more independent in energy matters.

What does a strong dollar mean for Americans?

For Americans, the purchasing power of the dollar is higher and consumption will remain strong. People will likely travel abroad more. Imports are cheaper, so they will import more. But obviously, if that happens, then the rest of the world is happily financing the country's current account deficit. (A current account is a record of a country's transactions with the rest of the world, including imports, exports, payments and other transfers. And a deficit occurs when spending exceeds production, resulting in imports clear.)

What does the dollar rally mean internationally?

This isn't necessarily bad for other economies, because if your currency is weaker, that should help your exports, and that's how the global economy rebalances. However, the strength of the dollar is not an exogenous shock, it is an endogenous market reaction to the fact that the United States is doing better than other countries.

I don't think the dollar will weaken until there is more convergence in growth or monetary policy. There is a very narrow path on which the dollar can weaken, and this usually happens when China, relative to its trend, is doing better than the United States. Despite the better than expected Q1 numbers in China, we are still not seeing this. Here again, geopolitical risks must disappear from the map, but everything indicates that between now and the American elections, geopolitical risks will remain.

Last year, Netflix made a particularly risky bet by pushing users who share passwords to create their own accounts, but it paid off, reports my colleague Samantha Delouya.

Netflix, the dominant streaming player, added more than 9 million subscribers in the first three months of the year, reaching a record 269.6 million subscribers.

It added more subscribers than many analysts, including myself, expected, said Ross Benes, principal analyst at eMarketer. This indicates that password sharing was even more common than previously thought, as Netflix continues to convert freeloader viewers into paying users.

Although subscriber additions beat Wall Street estimates, the company still reported a decline in growth compared to its blowout fourth-quarter report, when Netflix added 13 million subscribers. Netflix announced Thursday that it plans to stop sharing its quarterly subscriber numbers in 2025.

The company also reported first-quarter revenue of $9.37 billion and earnings per share of $5.28, beating Wall Street estimates, according to FactSet.

However, the stock, which has been Wall Street's darling this year, fell after the news.

Learn more here.

Monday: Profits from Verizon, Truist and Albertsons. The Chicago Fed releases its national activity index for March.

Tuesday: Profits from Visa, Tesla, Pepsico, Novartis, UPS, Lockheed Martin, Banco Santander, Spotify, General Motors and Halliburton. S&P Global releases April business surveys assessing economic activity in the U.S. services and manufacturing sectors. The U.S. Department of Commerce reports new home sales in March.

Wednesday: Profits from Meta, IBM, AT&T, Boeing, Chipotle, Hilton, Ford, Raymond James, Hasbro, Whirlpool and Wyndham. The US Department of Commerce releases March figures on new durable goods orders.

Thursday: Earnings for Microsoft, Alphabet, T-Mobile, Caterpillar, Comcast, Intel, S&P Global, Honeywell, Gilead, Northrop Grumman, Valero, Capital One, PG&E, Nasdaq, Snap, Southwest Airlines, CubeSmart, American Airlines, Skechers, Roku and Citizens Financial. The US Department of Commerce releases its first estimate of first quarter gross domestic product. The U.S. Department of Labor reports the number of new claims for unemployment benefits during the week ended April 20. The National Association of Realtors reports home sales based on contract signings in March. The Bank of Japan announces its latest interest rate decision.

Friday: Profits from Exxon Mobil, Chevron, HCA Healthcare, Colgate-Palmolive, Phillips 66 and Charter Communications. The U.S. Commerce Department releases March figures on household spending, income and the Fed's preferred inflation gauge. The University of Michigan will release its final consumer confidence number in April.

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