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Stronger Dollar is likely to help inflation. 

by Unlisted Blog   ·  May 6, 2022   ·  

Stronger Dollar is likely to help inflation. 

by Unlisted Blog   ·  May 6, 2022   ·  

From its low in January to the present time high, the record has risen 9.11 percent. Since its low in December 2020, the US dollar has risen 15.38 percent.

Inflationary pressures are increasing, as is the potential for growth. All else being equal, this is also true. The US consumer may be unconcerned about the 10% price increase for Italian-made leather goods.

Whenever one nation’s money is more grounded than another, advancement and extension in the more grounded nation will frequently drowsy while improvement and development in the more delicate country increase.

The expansion is thinking about strong regions for the in the United States, the European Central Bank’s typical even more drowsy progression considering the Ukraine war, and particularly higher energy costs.

The slowing Chinese economy is also a drag on global economies. China is battling Covid and the consequences of the lockdowns. 

In general, approximately 40% of all revenue for companies in the S&P 500 comes from outside the United States, primarily from Europe and Asia. 

When the dollar rises against the EUR, JPY, GBP, or CNY – as it has in 2021 and 2022 – it hurts the US economy in two ways: 

• Prices of American-made goods rise for customers in Europe, Japan, the United Kingdom, and China, among other places. This should slow economic growth, and • Goods sold in other countries bring in fewer dollars, resulting in lower revenues and earnings on quarterly financial reports. 

European consumers may be too distracted by the sharp rise in energy prices and the threat of war in June to notice that US goods are cheaper. 

Currency rates, like interest rates, act as a counterbalance to a stronger or weaker economy. The value of one currency in relation to another has an impact on the economies of those countries. 

Conversely, for the Eurozone, Japan, the United Kingdom, and China, for example, • prices of their foreign-made goods become cheaper to customers in the United States, and • goods from those foreign countries bring in more EURs, JPYs, GBPs, and CNH, eventually leading to higher revenues and earnings on quarterly financial reports.

As a result, inflation in the United States is being hampered by a stronger dollar headwind (a downward bias), and overall economic activity is slowing (all things being equal). 

The Federal Reserve meets next week, and while they make no comments on the value of the US dollar. The US Treasury is in charge of this. 

Perhaps more immediately, a lower currency (e.g., EUR) makes travel to that country more affordable for US residents (it is cheaper to go to the UK, and Europe now). In contrast, the impact of a stronger dollar should reduce foreign visitor arrivals in the United States (the dollar is expensive).

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