a U.S. Dollar note
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All things to all people, the U.S. dollar leaves its strong and lasting effect in each corner of the global economy: Important raw materials are bought and sold using the dollar, and it is the haven currency for investors.

The greenback is currently at a 20-year high against other world currencies, caused in part by bets that the Federal Reserve will hike its interest rates faster than most.

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Here are 10 reasons why you should be paying attention:

AMERICAN ABROAD

A strong dollar is good if you are a U.S. tourist. Meals, hotels, or a designer bag all are cheaper by comparison, whether in the French Riviera, London, or Cancun.

The opposite is true for the tourist visiting the United States – unless they bought their Las Vegas junket or Disneyland tickets a good while ago, it is going to be expensive.

THE JOYS OF PARITY

This is a welcome added bonus for Americans visiting any of the 19 countries that use the euro and a small relief for European visitors to the United States. No more mental arithmetic is needed to convert between euros and dollars – you can think of it as pretty much one for one now.

MADE IN AMERICA

For shoppers across the globe seeking top U.S. brands, the strong dollar means they could end up spending a premium for them unless local distributors attempt to soften the currency impact.

Just in the past few days, U.S. companies such as Mattel Inc – maker of Hot Wheels cars and the Barbie doll – said it was experiencing a hit from the dollar’s rise, although consumers as a whole seemed ready to embrace higher prices.

For consumer goods giant Procter & Gamble – maker of everyday products such as Ariel or Pampers – the dollar’s lift has always displayed to have a comparable impact on its sales.

EMERGING TROUBLE

For Argentines, the jump of the dollar against the peso has led to a doubling of local prices in only one year and a mounting economic crisis. Governments and businesses in many emerging economies fund themselves by offering bonds in U.S. dollars.

The amount of debt they have now has increased in value when measured in their local currency. Tapping the market for more credit has also become more costly since U.S. rates have advanced.

Dollar vs major currencies

RAW MATERIALS

Countries like Egypt and Turkey that import large amounts of their raw materials have been affected by a double whammy. Most commodities from wheat to oil are priced in U.S. dollars, indicating they are spending more in their local currency for every bushel or barrel they buy.

This comes as the price of most of those materials is currently at a multi-year high because of extreme weather, the conflict in Ukraine, and the aftershock of the COVID pandemic.

HOME SUPPORT

A strong dollar is a great news for people in poorer countries such as Guatemala and Mexico who rely on money sent by relatives who are employed in the United States. The COVID-19 fallout affected greatly these remittances in 2021 but they’ve seen a continuous recovery since.

INFLATION

Even for developed countries such as Germany, a strong dollar can cause problems because it helps stoke up already record-high inflation through more costly imports. Local central banks have mostly responded by hiking interest rates, which makes credit more expensive and dampens economic growth.

ROUBLE RALLY

The Russian rouble is the only currency in globally that is fine in the black against the dollar this year – an unlikely outcome for a country under international sanctions over its invasion of Ukraine. But this strength – a rather artificial result of controls on foreign exchange – does not do much for the ordinary Russian.

Moscow may be making tens of billions of dollars each month from its energy sales to the West, but Russian households still can’t draw out their foreign-currency savings. And Many Western brands from Ikea to H&M and Adidas have terminated operations in Russia since the war began.

BITCOIN

Marketed as the best shield against inflation, the world’s greatest cryptocurrency has not measured up to its promise and has plunged by more than half this year despite spiking consumer prices in many parts of the world.

Many individual investors drawn to crypto during the 2021 bull market have now abandoned the digital tokens to put their savings in a U.S. currency they regard as safer – and which is currently beginning to pay interest again.

BEEF UP

If the price of a hamburger is anything to be guided by, the dollar might actually be too strong and bound to move backward. The Economist’s Big Mac Index, which compares the price of the popular burger across the world, shows that the greenback is overvalued against all but a few currencies.

The dollar is most costly – and a Big Mac cheapest for a U.S. tourist – in Romania, Indonesia, and Venezuela. The reverse is true in Norway, Switzerland, and Uruguay.



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