Soaring U.S. dollar spreads pain worldwide- Bad News

U. S. Dollar

Security guard Mustafa Gamal had to transfer his wife and 1-year-old daughter to live with his parents in a hamlet 70 miles south of Cairo in order to save money due to the city's skyrocketing cost of living.

Gamal, a 28-year-old who stayed behind, gave up meat and worked two jobs while living in an apartment with several young people. Everything now costs twice as much, he claimed. There was no other option.

Gamal's suffering and annoyance are being felt by individuals all across the world. The same issue is being voiced by an importer of wine in Manchester, England, a seller of baby clothing in Istanbul, and an auto parts merchant in Nairobi: the weakening of their native currencies due to the strong U.S. dollar is driving up the cost of basic goods and services. Financial hardship is being made worse at a time when families are already experiencing shortages of food and energy due to Russia's invasion of Ukraine.

Eswar Prasad, a professor of trade policy at Cornell University, claims that a strong dollar aggravates already unfavourable conditions elsewhere in the world. Numerous experts are concerned that the significant increase in the dollar is raising the possibility of a world recession sometime in 2019.

The benchmark ICE U.S. Dollar Index, which compares the value of the dollar to a basket of important currencies, shows that the dollar has increased by 18% this year and reached a 20-year high last month.

The causes of the dollar's increase are well known. The Federal Reserve has increased its benchmark short-term interest rate five times this year to combat the U.S. inflation crisis and is indicating that additional increases are expected. As a result, interest rates on a variety of U.S. corporate and government bonds have increased, enticing investors and strengthening the dollar.

Comparatively speaking, most other currencies, particularly in developing nations, are significantly weaker. In relation to the dollar, the Egyptian pound has fallen by 20% this year, the Turkish lira by a startling 28%, and the Indian rupee by about 10%.

Rich nations are not exempt. The British pound has fallen 18% from a year ago, and one euro is worth less than $1 in Europe, which was already on the verge of recession due to skyrocketing oil prices. After Britain's new prime minister, Liz Truss, announced hefty tax cuts that shook financial markets and resulted in the resignation of her Treasury secretary, the pound briefly flirted with dollar parity recently.

Normally, countries could gain from declining currencies because it makes their goods more affordable and competitive elsewhere. Any benefit from increased exports, however, is currently limited because economic development is stuttering practically everywhere.

Tags: dollar, economic development, government bonds, inflation crisis, interest rate, u.s. dollar, U.S. Dollar Index, U.S. inflation, us dollar

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