As the growth outlook for the world economy worsens, investors have grown more concerned and flocked to the dollar, putting their money into safer assets like US Treasury bonds, Serebriakov said. The dollar is acting as a “safe haven,” said Vassili Serebriakov, a foreign exchange strategist at UBS, an investment bank. “Everyone’s talking about a recession, but the US economy is doing better than a lot of other economies,” he said. Russia’s invasion of Ukraine has also strained European economies and made natural gas prices skyrocket, making the US economy look healthier in comparison, Rogoff said. Higher interest rates make the dollar more attractive to investors, since it means they would get a bigger return. The central bank started to lift interest rates in March after keeping them at near zero for much of the pandemic, and carried out another big rate increase on Wednesday, raising rates three-quarters of a percentage point. The dollar has been rising in large part because the Federal Reserve is on track to increase interest rates faster than other major countries, said Kenneth Rogoff, an economics professor at Harvard University and a former chief economist at the International Monetary Fund. The basic explanation for the strong dollar boils down to this: While things might be weird in the US economy right now, a combination of factors has made the dollar a better bet for investors than most other currencies. 1) Why is the dollar extremely strong right now? Here are answers to four key questions you might have about the strength of the dollar. The value of the dollar also matters a lot for emerging economies, since it puts those countries at a greater risk of defaulting on their debts. Economists say the impact would be relatively small, but still positive, given that many households are struggling to afford essentials like food, rent, and gas.Ī strong dollar also has broad implications for the global economy, devaluing currencies in other countries.
Big companies that operate in multiple countries, such as Johnson & Johnson, have recently complained that the rising dollar could hurt their profits since foreign sales lose value when converted back into dollars and they become less competitive with local companies as their products become more expensive overseas.Įconomic policymakers and Biden administration officials have claimed the strong dollar could even help bring down inflation in the United States, which has been running at its fastest pace in four decades. The Japanese yen has also fallen sharply against the dollar.Ī strong dollar can make products imported into America cheaper and make trips abroad less expensive for American travelers. The dollar, which has been on a steep upward climb for about a year now, equaled the value of the euro this month for the first time in two decades. Even as recession fears mount and the economy shows signs of slowing, the dollar continues to surge. The value of the US dollar against other major currencies has reached its highest level since the early 2000s.
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