Strong dollar: 10 reasons why you care – Reuters.com | Hot Mobile Press

A US dollar bill is seen in this illustrative photo dated June 22, 2017. REUTERS/Thomas White/Illustration/File Photo

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FRANKFURT, July 25 (Reuters) – All told, the US dollar is making its mark in every corner of the global economy: it is the currency in which vital commodities are bought and sold, and it is the safe haven investors are turning to off in difficult times.

The greenback is now at a 20-year high against other world currencies, thanks in part to expectations that the Federal Reserve will hike interest rates faster than most.

Here are 10 reasons why you should pay attention:

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AMERICANS ABROAD – A strong dollar is great if you are a US tourist. Hotels, meals or a designer bag are cheaper in comparison, whether in London, on the Côte d’Azur or in Cancun. It goes without saying that the opposite is true for travelers heading to the United States – unless they bought their Disneyland tickets or Las Vegas Junket some time ago, it will cost more.

THE JOY OF PARITY – This is a welcome added boon for Americans traveling to any of the 19 countries that use the euro, and a small consolation for European tourists visiting the United States. No more mental arithmetic is required to convert between dollars and euros – you can now call it pretty much one to one.

MADE IN AMERICA – For shoppers around the world looking for top US brands, the strong dollar means they could end up paying a premium unless local retailers try to cushion the currency impact. Just in the past few days, US companies like Mattel Inc – makers of the Barbie doll and Hot Wheels cars – have said they’ve been hit by the dollar’s rally, although consumers overall seemed willing to accept higher prices to take purchase. At consumer goods giant Procter & Gamble – manufacturers of everyday products such as Pampers and Ariel – the appreciation of the dollar tended to have a similar effect on its sales. Continue reading

EMERGING TROUBLE – For Argentines, the appreciation of the dollar against the peso meant a doubling of local prices in just one year and a deepening economic crisis. Governments and companies in many emerging markets finance themselves by issuing bonds in US dollars. The amount they owe has now increased in value in their local currency. Tapping into the market for more credit has also become more expensive as US interest rates have risen.

RAW MATERIALS – Countries like Turkey and Egypt, which import many of their raw materials, have received a double whammy. Most commodities, from oil to wheat, are priced in US dollars, meaning they pay more in their local currency for every barrel or bushel they buy. This is because the price of many of these materials is already at multi-year highs due to the war in Ukraine, extreme weather conditions and the aftershocks of the COVID pandemic.

HOME ASSISTANCE – A strong dollar is good news for people in poorer countries like Mexico and Guatemala who depend on money sent by relatives working in the United States. The fallout from COVID-19 dealt a severe blow to these remittances in 2020, but they have seen a steady recovery since then.

INFLATION – Even for richer countries like Germany, a strong dollar can spell trouble because it helps fuel already record high inflation from more expensive imports. Local central banks have generally responded by raising interest rates, making credit more expensive and slowing economic growth.

RUBEL RALLY – The Russian ruble is the only currency in the world to be comfortably up against the dollar this year – an unexpected result for a country under international sanctions for its invasion of Ukraine. But that strength – a somewhat artificial result of exchange controls – does little for the ordinary Russian. Moscow may rake in tens of billions of dollars a month from its energy sales to the West, but Russian households are still unable to withdraw their foreign currency savings. And many western brands from Adidas to H&M and Ikea have stopped selling in Russia since the beginning of the war.

BITCOIN – Marketed as the ultimate hedge against inflation, the world’s largest cryptocurrency has failed to deliver on its promise, falling by more than half this year despite soaring consumer prices across much of the world. Throngs of retail investors drawn to crypto during last year’s bull market have now ditched the digital tokens to park their savings in a US currency they consider safer — which is now starting to pay interest again.

RISE – Looking at the price of a hamburger, the dollar may actually be too strong and inevitably fall back. The Economist’s Big Mac Index, which compares the price of the ubiquitous burger around the world, shows that the greenback is overvalued against all but a handful of currencies. The dollar is most expensive in Venezuela, Romania and Indonesia – and a Big Mac is cheapest for a US traveller. The opposite is true for Switzerland, Norway and Uruguay.

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Reporting by Francesco Canepa, Mark John, Elizabeth Howcroft, Marc Jones and Karin Strohecker; Editing by Alison Williams

Our standards: The Thomson Reuters Trust Principles.

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