Who wins and loses from the rise in the value of the dollar?

The US dollar index rose against a basket of six major currencies at the end of the session on Friday, to the highest level in almost 13 months, driven by expectations of a return of inflation and geopolitical tensions during a ‘ President-elect Donald Trump.

The dollar index reached 107.5, the highest level since October 2023, against six major currencies: the euro, the British pound, the Canadian dollar, the Swedish krona, the Swiss franc, and the Japanese yen.

A strong dollar is not always positive for the American economy, as it has some negatives, and its negatives outweigh the positives on a global scale.

Investors around the world have begun to assess the path of US interest rates at a meeting held by the Federal Reserve next December, amid expectations that interest rates will be kept unchanged, pending the economic policies which Trump will implement in his next term, especially with regards to customs duties on imports coming from China and the European Union.

Gains from dollar strength

Among the most prominent beneficiaries of the US dollar’s strength are American importers, such as companies and consumers who rely on imported goods, as they receive benefit from the lower cost of these goods in dollar terms.

The strength of the dollar makes foreign products cheaper, which increases domestic purchasing power, but at some point it leads to increased inflation driven by high demand for these cheap products.

Also among the winners are investors in dollar assets, which are foreign investors who hold dollar-denominated assets, such as US bonds, who benefit from the increase in the value of their investments when the convert to local currencies.

Foreign companies that export to the United States benefit from the strength of the US dollar When the dollar rises, foreign products become more competitive in the American market, which increases -trade of these companies.

During his first term, Trump criticized the weakness of the Chinese yuan and that the government there was deliberately weakening its currency in order to promote its exports, and thus be more competitive with exports. American.

Technically, the weak yuan reduces the cost of manufacturing, and therefore exports, and the cost of those goods becomes lower for the importers, who find them very profitable compared to the same well done in a market like the United States.

Dollar strength losers

American companies that export goods and services top the list of those affected by the strength of the dollar, as their exports are denominated in the strong dollar, and here the cost of exports trade that higher for imports.

American products become more expensive in international markets, which leads to a decrease in demand for them, while the export of competing countries in the production of all goods from trade is growing.

Multinational companies are also adversely affected by the decline in income when converted from foreign currencies to the dollar.

Also among the losers are emerging economies, especially developing countries that rely on dollar loans and suffer from high debt service costs.

When the dollar rises, these countries will need more local currencies to convert to the dollar, and to repay loans denominated in US currency, and the interest on the – those loans.

Also, emerging market currencies often lose part of their value against the dollar, causing internal inflation, and prompting the central bank to intervene moving interest rates to maintain the attractiveness of their currencies.

Also among those who will lose are commodity markets, as the strength of the dollar puts pressure on the prices of commodities such as gold and oil, which will have a negative impact on countries and companies that are responsible for the export of these resources.

In the global oil markets, the strength of the dollar leads to a decline in oil prices, and the equation in this case lies in the increase in the cost of buying oil for the countries that produce it. import, and here the demand for crude is decreasing and its global prices are decreasing.

Also among the losers is the tourism industry to the United States, as the strong dollar forces foreigners to pay more local currencies to buy the dollar, for purposes of travel and spending within markets America.