Title: How Unemployment and Inflation Affect the Dollar Exchange Rate | American Express
Headings: 
How the Unemployment Puzzle Could Affect the Dollar Exchange Rate
Unemployment, Inflation, and the Dollar’s Exchange Rate
How the Phillips Curve Determines the ‘Neutral’ Rate of Unemployment
Unemployment, Under-Employment and Participation Rates
Longer-Term Trends May Permanently Change the Unemployment-Inflation Relationship
The
Takeaway:
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Content: 11 Under-employment and labor market exit were not measured in unemployment figures but nevertheless exerted considerable downwards pressure on pay. However, under-employment is diminishing as the economy improves, and people who dropped out of the workforce are now returning. As a result, wages are now growing more strongly. 12 This has yet to be reflected in higher inflation, but if and when it does, the U.S. dollar exchange rate could fall. So, the Phillips Curve relationship could still hold if the definition of “unemployment” is widened to include under-employment and discouraged workers. Poor productivity may also explain the apparent failure of the Phillips curve relationship since the crisis. Since wage rises are typically associated with higher productivity, poor productivity may be helping to keep wage growth depressed, inflation low and the dollar exchange rate strong. 13 Also, workers could simply have gotten used to low wage growth. This could all change if productivity improved. Longer-Term Trends May Permanently Change the Unemployment-Inflation Relationship
Some economists say that the natural rate of unemployment could now be permanently lower than before the crisis.