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The Dollar’s Strength is Weighing Down the World The U.S. dollar is demonstrating extraordinary strength against other global currencies this summer,
touching highs against the euro, the Japanese yen and others, with broad effects globally. The rising strength of the dollar, which has been appreciating against other currencies since last year but began rising particularly rapidly this summer, is the result of multiple causes: the decision by U.S. central bankers at the Federal Reserve to begin aggressively raising interest rates to fight inflation, and global investors moving assets to the perceived safety of the U.S. And the face of uncertainty created by Russia’s invasion of Ukraine.
The impacts of a stronger dollar include a possible check on inflation in the US downward pressure on global commodity prices . And increasing strain on poor indebted countries with loans denominated in dollars. Many international investors are shifting assets into the U.S. and away from other developed nations for reasons other than interest rates, including perceived safety and better economic growth prospects. This is happening in Europe, in particular, because of the uncertainty created by the war in Ukraine.
Russia, heavily sanctioned by the West for its aggression, controls much of the natural gas that Europe uses to power its factories and heat its homes, and it is unclear whether that supply will be significantly constrained in the future with a negative effect on economic growth. Lets look at the effects in the U.S.
Within the U.S., the effects of a strong dollar are mixed. Americans traveling abroad will find that their money goes further than it used to — sometimes much further. A strong dollar also means that goods imported from countries whose currencies have dropped against the dollar become cheaper. However, the effects aren’t all positive. It’s not good for American manufacturers or anybody who exports from here, because it makes their exports more expensive,That will add to the trade deficit, which is already enormous. So, policymakers have to pick your poison that’s inflation or more trade deficits? What about International impact?
A strong dollar can have a negative effect on the global economy in general, and on emerging market economies On the global level, a stronger dollar is associated with slower growth and international trade volumes That’s particularly harmful for open, emerging economies. It’s associated with lower commodity prices, which hurts commodity exporters.” However, as the world’s most important currency, the dollar often rises in times of turmoil, because investors consider it to be relatively safe and stable. Recently, it has been on a major surge against major global currencies as a result of inflation, high interest rates and deteriorating economic concerns.