Super dollar: 10 issues to pay attention to

The greenback is now at a 20-year high against other world currencies, thanks in part to expectations that the Federal Reserve will raise interest rates faster than most of its peers.

Here are 10 reasons why you should pay attention:

AMERICAN ABROAD

A strong dollar is great if you are an American tourist. Hotels, meals or a designer bag are cheaper by comparison, whether in London, the French Riviera or Cancun.

Needless to say, the opposite is true for the traveler going to the United States: unless you bought your Disneyland or Las Vegas tickets a long time ago, it’s going to cost you more.

THE JOY OF PARITY

This is an added bonus for Americans traveling to one of the 19 countries that use the euro, and a small consolation for European tourists in the United States.

It is no longer necessary to do mental calculations to convert between dollars and euros: now it can be said that it is practically one for one.

MADE IN AMERICA

For shoppers around the world looking for the best American brands, the strong dollar means they could end up paying a premium for them unless local dealers try to cushion the impact of the currency.

In recent days, US companies such as Mattel Inc., maker of the Barbie doll and Hot Wheels cars, have said the rising dollar is hurting them, even as consumers as a whole seem willing to accept higher prices.

For consumer goods giant Procter & Gamble – maker of everyday products like Pampers and Ariel – the rise in the dollar has always had a similar impact on sales.

EMERGING PROBLEM

For Argentines, the rise of the dollar against the peso has meant a doubling of local prices in just one year and a growing economic crisis.

Governments and companies in many emerging economies finance themselves by issuing dollar bonds. The amount they owe has skyrocketed in value when measured in their local currency.

Going to the market for more credit has also become more expensive as US interest rates have risen.

RAW MATERIALS

Countries like Turkey and Egypt, which import much of their raw materials, have been hit with a double whammy. Most commodities, from oil to wheat, are priced in US dollars, meaning they are paying more in their local currency for each barrel or bushel they buy.

This comes as the price of many of those products is already at a multi-year high due to the war in Ukraine, extreme weather and the aftermath of the COVID pandemic.

HOME SUPPORT

A strong dollar is good news for people in poorer countries, like Mexico and Guatemala, who depend on money sent by relatives working in the United States. The fallout from COVID-19 dealt a heavy blow to these remittances in 2020, but they have steadily recovered since then.

INFLATION

Even for richer countries like Germany, a strong dollar can be a problem because it helps fuel already record inflation through more expensive imports. Local central banks often respond by raising interest rates, making credit more expensive and slowing economic growth.

RUBLE CLIMB

The Russian ruble is the only world currency comfortably in the black against the dollar this year, an unexpected result for a country under international sanctions for its invasion of Ukraine.

But this strength – a somewhat artificial result of currency controls – does little for ordinary Russians.

Moscow may earn tens of billions of dollars each month from its energy sales to the West, but Russian households are still unable to withdraw their hard currency savings. And many Western brands, from Adidas to H&M to Ikea, have stopped selling in Russia since the war began.

Bitcoin

Marketed as the ultimate shield against inflation, the world’s largest cryptocurrency has fallen short of its promise and is down more than half this year despite runaway consumer prices in much of the world.

Legions of individual investors attracted to cryptocurrencies during last year’s bull market have abandoned digital tokens to preserve their savings in a U.S. currency they perceive as safer, and which is now starting to yield interest again.

The price of hamburgers is an indicator that the dollar is too strong and is destined to go down.

The Economist’s Big Mac Index, which compares the price of the ubiquitous burger around the world, shows the greenback is overvalued against all but a handful of currencies.

The dollar is more expensive – and a Big Mac cheaper for an American traveler – in Venezuela, Romania and Indonesia. The opposite occurs in Switzerland, Norway and Uruguay.