Approximately two-thirds of the 150 or so global currencies tracked by Bloomberg have fallen this year against the U.S. dollar, a situation that could have serious consequences in the global economy.
The dollar’s strength comes from shifting predictions over when and by how much the Federal Reserve could cut the benchmark interest rate, currently at a 20-year high. These higher rates indicate that American assets provide better returns than in other countries, so investors need U.S. currency to buy them.
“It has never been truer that the Fed is the world’s central bank,” said Moody’s Analytics economist Jesse Rogers. The Japanese yen is currently at a 34-year low against the dollar, while the euro and Canadian dollar have weakened, too.
A stronger dollar affects inflation across the world because countries must exchange their own currencies for the same amount of dollar-denominated goods, such as imports from the U.S., as well as globally traded commodities. However, stronger U.S. currency is beneficial for exporters that sell to the U.S., as Americans can afford to purchase more foreign goods and services—which is a disadvantage for American companies.
