Photo Credit: Onur Coban
The U.S. dollar is getting stronger at the moment, signaling its strongest within two decades. The sudden surge in the value of the American currency has sent waves of both delight and concern to many local, national, and international players.
The American economy is suffering an economic downturn, prompting the Feds to increase interest rates. However, that is not stopping the dollar from getting higher in value. This phenomenon inevitably creates winners and losers within economies across the world.
On Monday, the British pound became weaker than the dollar, its record low. Meanwhile, the newly-installed Prime Minister Liz Truss announced tax cuts and suspension of corporate taxes to bolster economic growth in the U.K. economy. The United Kingdom is currently pressured to keep up with the growing concerns among Brittons because of the energy crisis brought by the supply cuts made by Russia.
The current relationship between the dollar and pound alarmed the Central Bank of the U.K., as it is only now that the British pound has become so weak that its value nears the U.S. dollar. The governor of the Bank of England, Governor Andrew Bailey, said that authorities are closely monitoring the situation.
The rise of the dollar is a double-edged sword, providing opportunities to many and creating a crisis on the other hand. The phenomenon is likened to the job market, where the rise in the unemployment rate means job opportunities for others but labor shortage for the rest.
The dollar and its strengthening are ushered by several political factors, most notably the war between Ukraine and Russia. This is because companies, investors, and countries put their reserves in dollars whenever crises occur in particular regions of the globe.
Who benefits from this
Importers in the United States
Since the dollar has a higher value than the currency abroad, buying goods and raw materials outside the country means lower company costs.
“For importers, it’s a positive story. 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,” said Jordan Rochester, a senior foreign strategist from Nomura Securities.
Travelers in the country
Since the dollar and the euro are already at par with each other in terms of value, it would mean that travelers from the U.S. can get a better and cheaper hotel and accommodation deals. When they travel to Europe and other nearby areas, using the dollar might mean cheaper expenses on their side.
Who does not benefit
Multinational companies in the United States are now seeing the grave effects of strengthening dollar value. In a recent survey, company executives of multinational companies report that this hurts their profits.
For instance, Salesforce, a San Francisco-based company, sells its softwares to various countries using different currencies. In the company’s recent financial statement, CEO Marc Benioff said that the increased dollar value would cost the company over $800 million.
Meanwhile, Michael Klein, a professor from Tufts University, said that a reduction of value might happen, especially when companies like Salesforce sell their products in a different currency and then injected them into American accounts.
“Repatriated profits from abroad, in euros or pounds or yen, are going to be worth less in dollars because a dollar is stronger,” he said.
As the condition becomes better for importers, it is the other way around for exporters. Buyers from other countries will be demotivated to purchase goods coming from the United States since a higher dollar value means they will be more expensive on the supermarket shelves.