30.8 C
Kuala Lumpur
spot_img

USD: Who is helped and hurt by a strong dollar?

Date:

Share:

The value of the U.S. dollar is surging at a moment when there are few clear bright spots in the American economy.

It’s now the strongest it has been in two decades, and it’s poised to get even stronger. The new power of the greenback is roiling economies and markets around the globe, and creating winners and losers.

Early Monday, the British pound reached a record low against the dollar after the United Kingdom’s new finance minister announced a package of tax cuts meant to stimulate the country’s economy.

Never before in history has the U.S. dollar’s value been so close to the pound, and the news generated a sense of emergency for the U.K. central bank. Bank of England Governor Andrew Bailey put out a statement intended to reassure the country, saying the bank “is monitoring developments in financial markets very closely.”

After the pound hit a record low, the governor of the Bank of England said its monetary policy committee “will not hesitate to change interest rates by as much as needed.

Isabel Infantes/AFP via Getty Images

Just like in the job market, where unemployment’s historic lows have meant an abundance of opportunities for workers and yet labor shortages for companies, the dollar’s rise above all other currencies has cut both ways.

Recent global shocks, namely the war in Ukraine, have helped push up the dollar’s value, since investors, companies and other countries often stow their reserves in dollars during tumultuous times.

But the overriding reason for the strong dollar is the fight against inflation.

The Federal Reserve is ratcheting up interest rates to attack the current near-constant rise in prices and said last week it expects more hikes this year. As it continues to raise rates, the dollar will strengthen.

Here is who a strong dollar helps, and who it hurts:

The winners

U.S. importers

For companies that buy goods from overseas, purchases are less expensive.

“For importers, it’s a positive story,” says Jordan Rochester, a senior foreign exchange strategist at Nomura Securities. “For anyone importing from the likes of China, importing raw metals and energy from abroad, that’s going to be positive for you — as long as it’s not priced in dollars, of course.”

On top of that, having a strong dollar mutes the effects of inflation.

U.S. travelers

Europe is on sale. Why the dollar-euro exchange rate is a win for Americans

For the first time in two decades, the dollar and the euro achieved “parity,” meaning one dollar is worth as much as one euro, and the two currencies are still pretty close to even.

So, U.S. travelers can get better deals on hotel rooms and meals out when they travel to Europe, or anywhere else right now. For them, it’s like the world is on sale.

The losers

Multinationals

Executives of multinational companies with headquarters in the United States have started to complain that the dollar’s strength is hurting profits.

Like many executives recently, Salesforce CEO Marc Benioff says a stronger dollar has weighed on his company’s profitability.
Justin Sullivan/Getty Images

“We had a great quarter, but yet again, the dollar had an even stronger quarter,” Salesforce CEO Marc Benioff said during an earnings call recently.

Salesforce is based in San Francisco, but it sells its software all over the world, in different currencies. Benioff noted that in this fiscal year, a strong dollar is likely to cost the company more than $800 million.

Michael Klein, a professor of international economic affairs at Tufts University, says that when a company like Salesforce converts what it makes in another country into dollars, it gets squeezed.

“Repatriated profits from abroad, in euros or pounds or yen, are going to be worth less in dollars, because a dollar is stronger,” he explains.

Emerging economies

Two factors are hitting emerging economies especially hard as the dollar strengthens:

First, most of the world’s commodities are priced in dollars. That means oil and wheat and soybeans grown in emerging markets are going to be more expensive.

Second, a stronger dollar is a strain on countries that have debt denominated in dollars. Interest payments are going to be more expensive, and so is refinancing.

Many U.S. exporters

What’s good news for importers isn’t good for many exporters. When the U.S. dollar is strong, American-made goods become more expensive — and less attractive to shoppers — in other countries.

U.S. tourism

People living in many other countries where the currency is now weaker than the dollar may think twice about traveling to the United States. As the dollar gets stronger, their visits will become more expensive.- NPR

Langgan Majalah Forex Malaysia

━ more like this

UK’s Economy To Dip Into Recession This Winter

The UK’s recession will officially begin this winter and is likely to last for most of next year, a closely watched survey out today...

Zombie Virus : Saintis Temui Virus Purba Yang Hidup Semula

Penyelidik menemui virus yang hidup semula daripada cairan permafrost Siberia yang telah beku sehingga 48,500 tahun, menimbulkan kebimbangan bahawa patogen tersebut boleh mencentuskan wabak...

Analisis Harga GBP/USD: Bertahan stabil sekitar 1.2300, betul-betul di bawah rintangan saluran menaik

GBP/USD berundur sedikit daripada paras tertinggi berbilang bulan, walaupun tidak mempunyai tindak lanjut.Persediaan teknikal masih memihak kepada kenaikan harga dan menyokong prospek untuk keuntungan...

GBP/USD to extend its rally further to the May high at 1.2668 – Credit Suisse

A strong week for GBP/USD has seen the pair clear with ease the key 200-Day Moving Average, now at 1.2144. Analysts at Credit Suisse...

Kristalina Georgieva dari IMF menyifatkan inflasi, kelembapan China sebagai risiko kepada Asia

Pengarah Urusan Dana Kewangan Antarabangsa Kristalina Georgieva menyifatkan tekanan inflasi yang meningkat dan kelembapan ekonomi China sebagai risiko kepada prospek ekonomi Asia, menyeru penggubal...
spot_img

LEAVE A REPLY

Please enter your comment!
Please enter your name here