A muscular dollar doesn't make everything stronger

The U.S. economy is expected to grow 3.3 percent in 2015, according to Standard & Poor's -- the first time it would top 3 percent since 2005. That growth should continue to bolster the already strong U.S. dollar, posing challenges for U.S. multinationals selling higher-priced American goods abroad.

In Monday's market action, the dollar traded at $1.1353 per euro and 119.23 per yen, double-digit declines for those currencies against the dollar compared to a year ago. Many companies, from conglomerate General Electric (GE) to consumer products giant Procter & Gamble (PG) have complained that the strong dollar has hurt their earnings.

Another consequence of the rising greenback is that financial services firms that do business in the U.S. are holding greater amounts of capital in dollars to account for the fluctuations in foreign currency values.

"I expect [the dollar] to strengthen somewhat given the overall strength of the U.S. economy," Beth Ann Bovino, chief U.S. economist at Standard & Poor's (MHFI), told CBS MoneyWatch.

America's accelerating growth stands in contrast to the slowing activity in much of the world. Japan's economy is in a recession, and the 11-nation eurozone is headed in that direction for the third time in recent years. Russia's economy is in a tailspin, thanks to low oil prices and international sanctions. Even China's once red-hot growth is slowing.

The U.S. also is benefiting from the Federal Reserve's now-completed massive bond-buying program known as quantitative easing. Some economists have credited the Fed's unorthodox moves with preventing catastrophic problems when the financial crisis pushed the U.S. economy into its worst decline since the Great Depression.

"While the Fed is talking up winding down its emergency stimulus measures -- thereby reducing the supply of dollars coming onto the market -- the Bank of Japan and the European Central Bank have started to embark on their own extraordinary measures -- thereby increasing the supply of yen and euros coming onto the market," wrote Christopher Vecchio, currency strategist at DailyFX, in an email. "Investors around the world are converting their funds into dollars so they can purchase [U.S. dollar]-denominated assets like stocks and bonds."

Although financial services firms are unhappy about having to set aside more capital because of the rising dollar, they can also benefit from the volatile currency market, according to Frederick Cannon, an analyst with Keefe, Bruyette & Woods.

"That could be a good thing for banks as they are positioned reasonably well," he said in an interview.

Looking at the rising dollar another way, Bank of America Merrill Lynch (BAC) forecasts that global nominal GDP will shrink 3.2 percent in dollar terms, to $2.3 trillion in 2015 because of the rising greenback.

"This is an unusual event," bank analysts said in a recent note. "It will be the sixth time since 1980 that global nominal GDP contracts in dollar terms and the second biggest contraction since 2009. This change will have far reaching implications across markets, principally for commodity prices."

Vecchio, however, cautions against worrying too much about this statistic, noting that many American companies that buy goods abroad do so in the local currency.

"After all, 'what's earned abroad, stays abroad,'" he wrote. "U.S. multinationals are infamous for keeping earned revenue overseas to avoid repatriation taxes ... Until U.S. export volumes drop -- there hasn't been a material shift thus far -- policymakers are unlikely to be too concerned."

Meantime, international investors are finding a lot to like about the U.S. Job creation continues to improve even though the overall unemployment rate ticked up to 5.7 percent last month from 5.6 in December. Hiring over the past three months has risen at its highest rate in 17 years. The government revised new job data upward for November and December to show that employers added 423,000 jobs and 329,000, respectively. Businesses added 257,000 jobs in January.

Still, one of the Fed's big concerns is deflation, which is a generalized decline in prices often caused by the reduction of credit and a drop-off in spending -- a phenomenon that's now clearly threatening Europe. S&P's Bovino noted that the Fed is worried about importing that problem from the eurozone.

"If a business is selling products," she said, "and prices are lower because of deflation but the costs remains the same, then they lose money."