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The Dollar Hits the Gym
In recent weeks, it seems that all I’ve been hearing about is the strength of the dollar. A “strong dollar” is a term that is rising in popularity but what makes a strong dollar and why does it matter?
To summarize NPR’s Planet Money podcast episode on the topic, a strong dollar equals “the economic forecast that a nation will do well.” Ultimately, people are betting big that the U.S. will remain the world’s currency as other currencies take a hit. As of last week, the British pound dropped to its lowest seen in years which can mean a variety of different things for the United Kingdom (discussed below).
My most recent plays have me investing into the currencies of other nations. For example, I foresee that other Western currencies will bounce back once the world stabilizes in price compared to the U.S. I’m going long on ETFs involving foreign currencies for now.
How Did We Get Here?
The Federal Reserve. Most of my posts have mentioned these guys and it’s not going to stop. Due to the Fed hiking interest rates faster than the rest of the world, this continually leads to a strong dollar. The Fed does this to secure power at home and afar.
Pros and Cons of a Strong Dollar from Investopedia
Here are the pros:
Imports are cheaper
Multinational (businesses) will perform better
Keeps the world knowing the dollar is the top dog
Here are the cons:
Tourism to the U.S. is more expensive
Exporters Suffer
Hurtful to Emerging Markets
Whether you like it or not, the U.S. dollar will continue to rise in the upcoming months. From the podcast episode linked above, one delicate balance is that a dollar can’t become too strong or risk sending the world (and the country itself) into a recession. It’s a tightrope game we’re playing at this point.
Have a great week,
Jordan