What’s Going On Here?The value of the US dollar got jacked last week: the currency rose to its highest level in three years compared to other currencies. What Does This Mean?There are a handful of potential reasons the dollar’s looked so appealing to investors recently. The rising demand for US government bonds – partly thanks to Federal Reserve’s incoming rounds of “quantitative easing” – could’ve played a part, as could the relative safety of those bonds and cash in times of uncertainty. And since the US is the world’s largest economy, the dollar is considered a safer – and as such more desirable – currency than most to keep said cash in. Why Should I Care?For you personally: Two sides of the same coin.
A stronger dollar pays for more overseas, so all our US-based Finimizers will get a lot more bang for their buck on their summer vacation this year – if, y’know, any of us are able to leave the house by then. But it also means other currencies now buy fewer dollars than before. Brits will certainly have felt that acutely last week, when the value of the pound fell to its lowest level against the dollar since 1985 (tweet this). Or they would have if, y’know, they were allowed into the States.
The bigger picture: No strength without weakness.
When the dollar strengthens, the effect is felt worldwide. That can mean some positives if you’re Stateside – like cheaper imported goods – but it also makes for a few downsides. For one, a strong dollar makes exports more expensive, potentially making American products less competitive on the global stage – and any sales American companies do make will be worth less when converted back into dollars. Then there’s the impact on emerging markets with US-denominated debt, whose interest payments have just become that more expensive. And since emerging market economies tend to move in sync, trouble for one could spell trouble for them all… | 