Don’t Lose Sight of This One Major Silver-Lining to Rampant Inflation

There are a lot of reasons the stock market has been down lately – from politics, to COVID recovery, to the simple fact that the economy is cyclical and you can’t expect a bull market to last forever. One reason the average retail investor may not be aware of, though, has a lot to do with things that happen beyond our shores – the rising value of the U.S. dollar versus many global currencies.

For help with managing your finances through the current market volatility and possible recessions, consider working with a financial advisor.

Global Currency Snapshot

The values of global currencies fluctuate just like any other commodity; right now, many currencies are significantly down compared to the U.S. dollar. The euro, for instance, is currently worth $0.96, the best value the dollar has had against the continental currency in around two decades. The British pound is worth $1.07, a record. The Japanese yen is at $0.0069, having taken a steep dive in previous weeks.

Overall, this is the strongest the dollar has been valued in two decades. The reason for this sudden strength is mostly due to impacts from the Federal Reserve’s efforts to fight inflation. The Fed has been raising interest rates frequently throughout the year as prices across the country rides. There will probably be more hikes this week. Those hikes impact the American economy by making it harder for Americans to borrow money, but it also strengthens the dollar against other currencies.

How This Impacts The Average Investor

Companies that import goods from overseas are going to see benefits from this, as purchases will be less expensive. If you are invested in a company that imports raw materials like metals or energy, you could see big gains despite the overall market downturn. On the other hand, companies that do their business in exporting are going to struggle, as will investors who put their money into those firms’ stock.

Big multinational companies will also face difficulties. Salesforce, a software company based in San Francisco, for instance, will probably see a cost of $800 million from the rising dollar, per NPR. This will obviously also impact the bottom line for Salesforce’s investors, and for investors in other major firms that operate all over the world.

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Travel Impacts

Travel will also be impacted by the strength of the dollar. Americans looking to travel overseas will likely see favorable exchange rates when they buy local currency, meaning traveling will cost less overall. This could be especially useful for people looking to travel to traditionally expensive locales like the United Kingdom. Don’t get it twisted, a trip to London will still leave your wallet lighter, but maybe a bit less so than it would have a year ago.

On the other hand, travel to the U.S. will be more expensive, potentially impacting businesses that make money from tourism. Again, this could have an impact on investors.

The Bottom Line

While most economic news out of the U.S. the past few months has been negative, there is one strength – the U.S. dollar, which is valued historically high vs. other global currencies including the euro, pound and yen. This is largely because of rising interest rates designed to fight inflation. With more rate hikes likely coming, this trend is unlikely to reverse in 2022.

Investing Tips

• For help navigating the current economic atmosphere, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Investing in foreign currency is one slightly more advanced investing technique that may be a bit more lucrative right now. Make sure do your homework and possibly consult a professional if this interests you.

Photo credit: ©iStock.com/Nattakorn Maneerat, ©iStock.com/Zedelle, ©iStock.com/gaffera

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