From London to Tokyo, people are feeling the effects of falling purchasing power as governments try to fight inflation and currency weakness in the midst of a cold currency war.
Almost all major currencies have lost ground against the US dollar since last month, an offshoot of the Federal Reserve’s campaign to curb inflation by raising interest rates.
For Americans, a stronger dollar means cheaper imports and overseas travel; But it could also affect other economies including Egypt, China, the Eurozone and Tunisia, that is, from east to west.
All items are priced in dollars
The reason for this negative effect is that most commodities are priced in dollars, which makes essentials such as oil and wheat more expensive for importers, and the same is true for government debt, as the cost of oil increases. interest payments.
This year the value of the US currency jumped about 20% according to the US dollar index, which measures the currency against a basket of major trading partners, while the dollar was up 24% against the Egyptian pound.
The rise in the dollar has put other countries trying to revive their economies in a difficult situation: raising interest rates would boost their currency, but it would also halt the economic recovery.
China, which cut interest rates to cope with a slowing economy and stem the housing crisis, has seen the yuan drop to its weakest level in more than 14 years.
Meanwhile, inflation is hitting record highs as Friday’s data showed that the rate of price increase in the Eurozone is expected to rise to 10% in September.
From London to Tokyo, people are feeling the effects of falling purchasing power as governments try to fight inflation and a weak currency.
Here’s how the dollar’s rise has affected some of its largest trading partners, according to a Washington Post summary:
trip in pounds
British Prime Minister Liz Truss has had a rough start since taking office in early September; The government faces rising public debt, which leads to a decline in investor confidence and a cost-of-living crisis.
The death of Queen Elizabeth II earlier this month amplified the sense of instability even as the Bank of England said it was monitoring financial market volatility “closely”.
A weaker pound will make life more difficult for Brits in many ways, driving up the prices of already inflated imported food and raising energy bills, as roughly half of the gas used in the UK is imported from the international market.
European euro
A strong dollar is good news for Americans who are considering a vacation in Europe or buying goods overseas; But the decline in the euro also indicates a slowdown in world trade, which adds to fears of recession; This summer, the euro and the US dollar reached parity for the first time in two decades.
Despite all the criticism of the Fed for being too slow to deal with inflation, after raising interest rates five times this year, other central banks have taken longer to act, including the European Central Bank.
Eurozone officials are also grappling with the energy crisis, global hunger triggered by the Russian invasion of Ukraine and wider repercussions.
Ukraine and Russia are among the world’s largest producers of wheat, cooking oil and fertilizers, and the Russian invasion has drastically increased prices and created a shortage of basic foodstuffs around the world.
JPY
For the first time since 1998, Japan stepped into currency markets this month to buy yen and sell dollars, a move aimed at strengthening the local currency.
Unlike their American and European counterparts, Japanese officials are determined to keep interest rates low, to fuel the country’s fragile economic recovery from the COVID-19 pandemic; But this leads to a decline in the yen against the dollar.
The Japanese are suffering: a weak currency is making imports of fuel and food more expensive, and workers have seen their real wages fall as prices rise, Reuters reported earlier this month.
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