Page 12 - aruba-today-20220921

A12 BUSINESS
Wednesday 21 september 2022

EXPLAINER: How the strong U.S. dollar

can affect everyone

By STAN CHOE
AP Business Writer
NEW YORK (AP) — The buck
isn’t stopping.
The value of the U.S. dol-
lar has been on a tear for
more than a year against
everything from the British
pound across the Atlantic
to the South Korean won
across the Pacific.
After rising again Friday,
the dollar is near its highest
level in more than two de-
cades against a key index
measuring six major cur- People transport a television to their car after shopping at a Best
rencies, including the euro Buy store, Nov. 26, 2021, in Overland Park, Kan.
and Japanese yen. Many Associated Press
professional investors don’t Even though inflation is centage point could be
expect it to ease off any- high, the U.S. job market possible, following a hotter-
time soon. has remained remarkably than-expected report on
The dollar’s rise affects solid. And other areas of U.S. inflation Tuesday.
nearly everyone, even the economy, such as the Partly because of that less
those who will never leave services sector, have been aggressive bent, 10-year
the U.S. borders. Here’s a resilient. bonds across Europe and
look at what’s driving the That’s helped offset wor- other areas of the world of-
U.S. dollar higher and what ries about a slowing hous- fer much lower yields than
it can mean for investors ing industry and other parts U.S. Treasurys, such as Ger-
and households: of the economy that do many’s 1.75% and Japan’s
WHAT DOES IT MEAN TO SAY best when interest rates are 0.25%. When investors from
THE DOLLAR IS STRONGER? low. That in turn has trad- Asia and Europe buy Trea-
Essentially that one dollar ers expecting the Federal surys, they have to trade
can buy more of another Reserve to follow through their own currencies for U.S.
currency than it could be- on its promise to keep hik- dollars. That pushes up the
fore. ing interest rates sharply, dollar’s value.
Consider the Japanese and to hold them there a A STRONG DOLLAR HELPS
yen. A year ago, $1 could while, in hopes of knocking U.S. TOURISTS, RIGHT?
get a little less than 110 down the worst inflation in Yes. U.S. travelers in Tokyo
yen. Now, it can buy 143. 40 years. spending 10,000 yen on din-
That’s about 30% more and Such expectations have ner will be using 23% fewer
one of the biggest moves helped the yield of a 10- dollars than a year ago for
the U.S. dollar has made year Treasury more than the same-priced meal.
against another currency. double to 3.44% from With the dollar up sharply
Foreign currency values are roughly 1.33% a year ago. so far this year against ev-
constantly shifting against WHO CARES ABOUT BOND erything from the Argen-
each other as banks, busi- YIELDS? tine peso to the Egyptian
nesses and traders buy Investors who want to make pound to the South Korean
and sell them in time zones more income off their mon- won, the dollar is going fur-
around the world. ey. And those juicier U.S. ther in many countries than
The U.S. Dollar index, yields are drawing investors before.
which measures the dollar from all over the world. DOES IT HELP ONLY RICH
against the euro, yen and Other central banks have PEOPLE WHO CAN AFFORD
other major currencies, has been less aggressive than TO TRAVEL ABROAD?
climbed more than 14% this the Fed because their No. A stronger dollar also
year. The gain looks even economies seem to be helps U.S. shoppers by
more impressive compared more fragile. The Europe- keeping a lid on prices for
against other investments, an Central Bank just raised imports and pushing down-
most of which have had a its key rate by the largest ward on inflation.
dismal year. U.S. stocks are amount ever, three-quar- When the dollar is rising
down more than 19%, bit- ters of a percentage point. against the euro, for exam-
coin has more than halved But the Fed has already ple, European companies
and gold has lost more raised its key rate by that make more euros on each
than 7%. amount twice this year, $1 of sales. With that cush-
WHY IS THE DOLLAR with a third expected this ion, they could cut the dol-
STRENGTHENING? upcoming week. Some lar price for their products
Because the U.S. economy traders even say a gar- and still make the same
is doing better than others. gantuan hike of a full per- amount of euros. q