10 reasons why the strength of the US dollar will affect your life as a consumer

10 reasons why the strength of the US dollar will affect your life as a consumer
10 reasons why the strength of the US dollar will affect your life as a consumer

The US dollar leaves its mark in every corner of the global economy; It dominates 85% of commercial payments, the currency in which vital raw materials are bought and sold, and the safe haven of investors in crises.

The influence of the dollar is increasing with its highest level in 20 years, against the basket of major global currencies, with the direction of the US Federal Reserve (the central bank) to further raise interest rates.

Here are 10 reasons why the strength of the dollar will affect your life as a consumer, according to Reuters:

1 – Made in America

For shoppers around the world looking for the best American brands, a strong dollar means they are paying higher prices at local distributors who are trying to keep their prices relatively low so they can continue the rising tide.

Not long ago, US companies such as Mattel Inc., maker of Barbie dolls and Hot Wheels cars, said they were hit by the dollar’s rise, even if consumers as a whole seemed willing to pay higher prices.

For consumer goods giant Procter & Gamble, maker of everyday products such as Pampers or Ariel, a stronger dollar has always tended to have a similar effect on its sales.

2 – The problem of emerging countries

For Argentines as an emerging country, for example, the dollar’s appreciation against the peso doubled domestic prices in just one year, generating a mounting economic crisis, while governments and companies in many emerging economies finance their treasury operations by issuing dollar bonds. Thus, the amount they owed has now increased in value when measured in their local currency.

Taking advantage of the market to get more credit is also becoming more expensive, due to rising interest rates in the United States.

3 – Raw materials

Countries like Turkey and Egypt, which import much of their raw materials, have been hit by a double whammy. Most commodities from oil to wheat are priced in dollars, meaning that these countries pay more in their local currency for every barrel or bushel they buy.

This comes at a time when the price of many of these materials has already reached its highest levels in several years, due to the Ukraine war, severe weather and the repercussions of the Corona pandemic.

4- Expatriate remittances

A strong dollar is good news for people in poor countries like Mexico and Guatemala, who depend on money sent by relatives working in the United States.

The fallout from Corona dealt a heavy blow to these remittances in 2020, but they have witnessed a steady recovery since then.

5- Inflation

Even for wealthier countries like Germany, a strong dollar can cause problems because it helps fuel already high inflation through more expensive imports.

Domestic central banks have generally responded by raising interest rates, which makes credit more expensive and slows economic growth.

6 – Rise of the ruble

The Russian ruble is the only currency in the world to rise against the dollar this year, an unexpected result for a country under international sanctions for its invasion of Ukraine, but this strength, a somewhat artificial result of foreign exchange controls, does little for ordinary Russians.

Moscow may earn tens of billions of dollars each month from energy sales to the West, but Russian households still cannot withdraw their foreign exchange savings.

Several Western brands such as Adidas, H&M and Ikea have stopped selling in Russia since the start of the Ukraine war.

7 – Americans Abroad

The strength of the dollar is great for you if you are an American tourist, as hotels, meals or organized tours all become relatively cheaper, whether in London, the French Riviera or Cancun.

Needless to say, the opposite is true for the US-bound traveler, and unless they buy Disneyland or Las Vegas tickets long ago they will be much more expensive with the dollar hitting a nearly 20-year high.

8 – The joy of the currency exchange rate

This is a welcome added blessing for Americans traveling to one of the 19 countries that use the euro, but a small consolation for European tourists in the United States.

There is no need for much mental arithmetic to convert between the dollar and the euro, now that they are close to the break-even rate.

9 – Bitcoin

Marketed as the ultimate shield against inflation, the world’s largest digital currency has yet to deliver on its promise and has fallen by more than half this year despite runaway consumer prices in large parts of the world.

The legions of retail investors who were drawn into cryptocurrencies during the bull market last year have dumped them, now, in order to hold their savings in a US currency they see as safer and which is now beginning to pay high interest again.

10 – The “Big Mac” indicator

The Economist invented the BIG MAC in 1986, as a guide to finding out if currencies were at the “correct” level. The index, which compares the price of burgers around the world, shows that the US currency is overvalued against all but a handful of currencies.

The article is in Arabic

Tags: reasons strength dollar affect life consumer

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