Is a Weak US Dollar Good or Bad?

The mighty greenback is no longer mighty. US dollar weakness has been one of the financial markets' strongest trends over the last three months. As the world's primary reserve currency, US dollar fluctuations affect every nation in the world. Since March, the US dollar has depreciated 20% against the New Zealand and Australian dollars and approximately 10% against the British pound and euro. Even the Singapore dollar has risen 6% against the greenback.

There are many reasons why investors are bailing out of US dollars. The improvement in market sentiment has helped to fuel risk appetite and ease safe-haven flows. There were also concerns that the US faced a similar credit outlook downgrade as the UK, encouraging some investors to diversify out of US dollar-denominated assets.

For currency traders, the US dollar's weakness has provided plenty of opportunities, but what does a weak dollar mean for the US economy? As there are two sides of every coin, a weak currency also has its advantages and disadvantages.