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What do the terms weak dollar and strong dollar mean?

July 4, 2014 9:36 am

The two terms, weak dollar and strong dollar, are generalizations used in theforeign exchange market to describe the relative value and strength of the U.S. dollar against other currenciesA strong dollar occurs when the U.S. dollar has risen to a level against another currency that is near historically high exchange rates for the other currency relative to the dollar. For example, the exchange rate between the U.S. and Canada has hovered between 0.6 CAD/USD and 1.1 CAD/USD, if the current exchange rate is at 0.7 CAD/USD, the American dollar would be considered weak and the Canadian dollar strong. A strong U.S. dollar, on the other hand, is one that is trading at a historically high level, such as 1.1 CAD/USD.

The terms strengthening and weakening have the same context but refer to the changes in the U.S. over the period of time being mentioned. A strengthening dollar is one in which the U.S. dollar has increased in value compared to another currency. This means that the U.S. dollar now buys more of the other currency than it did before. A weakening U.S. dollar is the opposite as it means the U.S. dollar has fallen in value compared to the other currency – making the U.S dollar buy less of the other currency.

The terms strong, weak, strengthening and weakening can be used to refer to any currency.

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