While soaring inflation has taken a bite out of your paycheck’s spending power, something else happened. The value of the dollar has surged, and by no small measure.
And could go far higher before the rally ends, history shows.
The dollar index, which measures the currency’s strength relative to a basket of other leading currencies including the Japanese yen, the euro, and the British pound, recently hit 108, according to data from TradingEconomics.
That’s up around 50% from its all time lows around 70 in 2008, 2009 and 2011. Those years involved weakness in the US economy.
However, the likelihood is that the greenback, which has been the world’s go to currency since WWII, will gain in value compared to other currencies.
First, Federal reserve chair, Jerome Powell, recently said there may be some financial pain ahead for the US population. That’s been taken to mean interest rates will continue to rise as long as the Fed thinks inflation is too high.
The result will be the dollar will be more attractive than other currencies. That’s because rising interest rates is also synonymous with high interest on bank accounts. In this case, it is likely that dollar banking deposits will offer increasing more interest than will euro-denominated bank deposits.
The European central bank, which manages Europe’s main currency the euro, has been even slower than than the Fed to raise the cost of borrowing money. On top of that Europe’s economy is far weaker than the US
The likely rising differential in dollar versus euro interest rates could boost the value of the greenback a lot more.
How much? The dollar’s record high since 1971, when fixed exchange rates were dumped, came in February 1985 when the greenback reached staggering 160.