Got a pocket full of 'Strong Dollars'? There's good news and bad
HOUSTON - Amid the financial headlines about rising inflation and interest rates, you may have also heard that the U.S. Dollar has been growing stronger, in the world.
Simply put, it's a description of the strength of one currency, versus another, as they rise and fall in comparison to each other. Year to year, the Dollar has seen one of its most dramatic increases in decades, but it may not be as great as it sounds.
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Houston financial strategist Lance Roberts says the Dollar has risen because it is the go-to currency for much of the world's business, and financial uncertainty and rising interest rates have made investing in the dollar safe and attractive.
"When there's times of financial concern and economic stress, money goes to safe havens," says Roberts. "That safe haven is always the U.S. Dollar."
To understand what's happened, let's examine the Euro. At the height of the financial crisis, in 2008, it cost about $1.50 for one Euro. By contrast, the most recent exchange would give you a Euro and two cents for each Dollar.
The immediate benefit for U.S. consumers is foreign travel, commodities, and imports into the U.S.
"Anything you're buying from overseas is now cheaper than it was just a year ago," says Roberts.
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The downside is for U.S. Companies, and employers, trying to do business with the rest of the world. 40%of corporate profits come from international activity, and a stronger dollar makes it difficult for foreign customers to be able to afford U.S. goods and services.
"As imports are getting more expensive because of the value of the Dollar, that weighs on their consumption ability, and acts as a further drag in pushing them into recession," Roberts explains."
While the fed aggressively pushes interest rates higher, to try to control inflation, the Dollar is likely to get stronger and further stress the global economy.
Lance Roberts, for one, sees a possibility that central bankers may ease off on that tactic, in an effort to avoid causing more trouble than they're trying to solve.