The U.S. dollar has been surging so much that it's nearly equal in value to the euro for the first time in 20 years.
FILE - In this Feb. 27, 2008 file photo, euro coins and dollar bills are seen in Frankfurt, central Germany. The U.S. dollar has been surging in 2022, so much that it's nearly equal in value to the euro for the first time in 20 years. That trend, though, threatens to hurt American companies because their goods become more expensive for foreign buyers. If U.S. exports were to weaken as a result, so, too, would the already-slowing U.S. economy. The U.S.
The dollar is climbing mainly because the Federal Reserve is raising interest rates more aggressively than central banks in other countries are in its effort to cool the hottest U.S. inflation in four decades. The Fed's rate hikes cause yields on U.S. Treasurys to rise, which attracts investors seeking richer yields than they can get elsewhere in the world. This increased demand for dollar-denominated securities, in turn, boosts the dollar's value.
This year, the euro has sagged largely because of growing fears that the 19 countries that use the currency will sink into recession. The war in Ukraine has magnified oil and gas prices and punished European consumers and businesses. “This war is a ‘body-blow’ to Europe,’’ Robin Brooks, chief economist at the institute of International Finance banking trade group, tweeted this week. “It undercuts Germany’s growth model that’s based on cheap Russian energy. Europe is facing a seismic shift, and euro needs to fall to reflect that.’’
In the meantime, the dollar’s rise is complicating an already uncertain outlook for the United States, the world’s biggest economy. On the one hand, the stronger greenback makes foreign goods less expensive for Americans and eases inflationary pressures. But not by much. Worse, a stronger dollar makes U.S.-made products more expensive in overseas markets, while giving foreign products a price edge in the United States.
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