While the US Dollar was undeniably strong in 2022, its dominance is likely to wane in 2024. However, the pace and extent of the decline depend on various economic and geopolitical factors.

strong dollar impact

• dollar is attractive at both ends of the “dollar smile”
• dollar is dominant reserve currency
• 7 trillion reserves dollars held by 140+ countries as of 2022
• dollar is stable – relied on for trade and transactions
• there is always demand for dollars:
  • greed mode (this is the upturn portion of a smile)
    • economy is growing
    • investors bet on economic growth that leads to interest rate increases
  • fear mode (this is the downturn portion of a smile)
    • economy is struggling
    • investors flee to dollar as more secure asset

safe haven especially strong in 2022 because of uncertainty

• supply chain issues
• global inflation
• energy crisis over ukraine war

prices

• strong dollar means other currencies are weaker
  • it takes less dollars to purchase 1 unit of another country’s currency
• those countries see
  • prices go up for goods and services
  • a stronger dollar “exports” inflation to emerging markets
• in US, a strong dollar makes imported goods and travel abroad cheaper
  • US exports get more expensive for countries where the goods are exported to (less affordable)
  • sales of goods from exporting companies can go down, affecting the economy

40% of S&P revenue comes from exports

• strong dollar can result in lower earnings
• lower earnings can make stock prices fall

analysts see a strong dollar as the equivalent of an interest rate hike

• companies slow down growth, reduce spending
• can lower inflation

strong dollar is good until it isn’t (good up to a point)

dollar is main currency used in global trade

• food and petroleum are priced in dollars when traded between many countries