Photo Credit: Onur Coban
The U.S. dollar is strengthening right now, reaching its best level in twenty years. Many local, national, and international actors have expressed both joy and anxiety at the abrupt increase in the value of the American dollar.
The Fed raised interest rates as a result of the economic downturn affecting the American economy. That hasn’t stopped the dollar from appreciating, though. This occurrence unavoidably produces winners and losers in economies all over the world.
The British pound hit a record low on Monday as it has fallen short against the U.S. dollar. To encourage economic growth in the U.K. economy, newly-installed Prime Minister Liz Truss announced tax cuts and the suspension of hiked business taxation. However, the energy crisis brought on by Russia’s supply cutbacks is presently exerting pressure on the U.K. to keep up with the mounting worries of Britons.
The British pound has just recently lost so much ground that its value is nearing that of the U.S. dollar; therefore, the existing connection between the two currencies frightened the Central Bank of the U.K. Authorities are constantly watching the issue, according to Governor Andrew Bailey of the Bank of England.
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One side of the dollar’s ascent offers an opportunity to many people, while the other side brings about a disaster. The phenomenon is compared to the job market, where an increase in the unemployment rate results in more work prospects for some people but a labor scarcity for the remainder.
Several political issues, most notably the confrontation between Ukraine and Russia, have contributed to the rise of the dollar. This is so that businesses, investors, and nations may use their reserves in dollars whenever there is a crisis in a certain area of the world.
Who are considered winners
Importers in the United States
The cost of purchasing goods and raw materials outside of the country is lower for businesses since the dollar is worth above other currencies.
Jordan Rochester, a senior foreign strategist from Nomura Securities, said, “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.”
Travelers in the country
Given that the value of the dollar and the euro are already equal, American tourists will be able to find better and more affordable hotel and lodging options. Utilizing the dollar might result in lower costs for them while traveling to Europe and other nearby regions.
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Who are considered losers
Multinationals
Multinational corporations operating in the United States currently feel the stronger dollar’s severe consequences. Executives of international corporations say this has reduced their earnings in recent poll.
For instance, the San Francisco-based corporation Salesforce sells its software in numerous currencies to different nations. CEO Marc Benioff estimated that the higher monetary worth would cost the business approximately $800 million in the most recent financial report of the company.
Michael Klein, a professor at Tufts University, asserted that a value drop might occur, particularly when businesses like Salesforce sell their products in a different currency before moving 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.
U.S. Exporters
For exporters, the situation gets worse as it gets better for imports. Since products with a greater dollar worth will be more costly on supermarket shelves, consumers from other nations will be discouraged from buying products made in the United States.
Source: NPR
