CHART OF THE WEEK 📈
The US dollar has been the strongest now, in the last two decades. The largest currency strengthening has quite an uneven impact across the world. For some countries, it’s a major boost, and for the rest, a drag.
American tourists - They already have a strong passport that barely requires a visa to travel other countries. And now, with dollar strengthening, other currencies become cheaper. You can now get more Euros for the same amount of Dollars, and travel hence becomes cheaper.
Exporters to the US - Indian technology services companies or chemical companies exporting to the US benefit if they get paid in dollars, and then bring back rupees. So for every dollar, earlier they would bring back Rs. 74, and now they will bring back Rs. 80.
Investors investing in the US from some place else - Take an Indian investor for example. Just like the exporter, they will naturally get more money back, thanks to conversion rates. Provided their investments haven’t depreciated in value of course.
American multinationals - Companies with sizeable operations outside the US have to bring money back into the US. Essentially, they’re earning in weaker currencies, and bringing lesser dollars back, impacting revenue and earnings. Several of these including Microsoft and Salesforce gave announced profit warnings in the US.
Debt-ridden countries, or importing countries (and Europe) - Take India for example. We import a majority of our oil. This just got more expensive with the strengthening of the dollar. Countries with dollar-denominated debt suffer too - they have to now pay higher dollar interest.
Interestingly, the pressure mounts on central banks globally to raise interest rates. Why? So that their currencies stabilise. Which brings us to an important point - even if inflation gets controlled in India, a weaker currency would mean the RBI would probably continue hiking rates to keep things steady.