How a Strong US Dollar Affects Your Wallet

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The strength of the US dollar is good for consumers in some ways but hurts in others.

Compared to some of the other major currencies, the U.S. The dollar has rarely been more valuable, but whether it’s a good or bad thing for your wallet most of all depends on who you are and where and what you’re spending your money on.

On Wednesday, the price of the dollar was 0.92 British pounds, slightly below the record high of 0.93 pounds recorded in 1985. The most since 2001, $1.00 bought 1.03 euros on that given day. The dollar also reached its highest level against the Japanese yen since 1998, and it is rising against the Chinese yuan, reaching its highest level since 2008. In short, a dollar goes much further overseas than it did at the beginning of the year.

While this may sound like a good thing to some people, especially in the United States, and if you have dollars in your pocket, especially at a time when extreme inflation is reducing the value of money, it is a very double-edged sword, and it can help or hurt the general public, depending on your situation.

“It’s a very complicated thing because a strong dollar can both hurt and help the same person,” said Michael Klein, a professor of economics at Tufts University in the United States.

Why Is the Dollar Appreciating?

Some economists say that there are several reasons for the current surge in the dollar. First, the Federal Reserve’s recent rate hikes have raised yields on United States Treasury bonds and made them a more attractive investment. Second, the US economy, despite fears of recession, has better economic growth prospects than some other parts of the world, but the war in Ukraine has caused less damage than in Europe. As a result, foreign investment has therefore flowed into the US economy, helping to boost the value of the US dollar.

Where a Strong Dollar Helps

A stronger US dollar reduces the cost of importing goods from other countries. And indeed, according to some data from the Bureau of Labor Statistics, the price of imports fell 1% in the month of August. And that’s especially helpful for American consumers, who buy huge amounts of consumer goods manufactured abroad, especially those from China.

According to Michael Klein, an economics professor at Tufts University, it also lowers the cost for American businesses to buy goods from other countries, which can help the company reduce its reliance on imports, according to Michael Klein.

A strong US dollar is also a clear advantage for American tourists, who will find their dollars going much further abroad than in the past few years. And the difference is especially noticeable in the UK, where the dollar and the pound can now be traded at close to one-to-one ratios. As recently as 2008, it took $2 to get 1 pound of sterling.

“This would be a great time to go to Britain,” said Michael Klein, a professor of economics at Tufts University.

Where a Strong Dollar Hurts

On the flip side, a stronger US dollar would probably make the US a less attractive destination for foreign travelers and would hurt the US tourism business and the hospitality business as a whole, Professor Michael Klein said.

Similarly, American companies that mostly export goods instead of importing them find the price of their products going up overseas, making them a hard sell. 

And while the effects of a stronger dollar on the US economy are mixed, they are more firmly in the “bad” camp for some developing countries, which face the double whammy of paying more to import commodities like oil and paying off foreign debt that is becoming increasingly expensive to pay off, according to a blog post by a World Bank economist.

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