How many times over the past year have we used the phrase “the strong dollar” at Marketplace? Regular listeners and readers will know — or should know, if we’re doing our jobs right — that the answer is “many.”
Like when we talked about how the dollar’s rise relative to other currencies has been great for Americans traveling abroad. Or all of the times when we reported that it’s not so great for American companies that are trying to compete overseas.
But it’s starting to look like this era of the strong dollar could be coming to an end: Over the last month or so, the greenback has given up about half of its gains for this year.
Part of why the dollar’s been so strong this year is because the Federal Reserve’s been raising interest rates, making U.S. bonds more attractive. And to buy U.S. Treasury bonds, you’ve got to have dollars. But the Fed is likely to slow down its rate hikes.
“Other central banks potentially will be hiking a little bit more rates more than is expected, which will be beneficial for those local countries’ currencies, relative to the U.S. dollar,” said Chuck Tomes at Manulife Investment Management.
A weaker U.S. dollar could help all the big, multinational companies that sell a lot of products overseas.
“Manufacturing companies that are selling abroad and competing with foreign manufacturers may find that they are able to do better with a less-strong dollar,” said Kathryn Dominguez, a professor at the University of Michigan.
Some American exporters are already benefiting from the weakening dollar.
Take the agriculture sector, for example, said Naomi Blohm, senior market adviser with Total Farm Marketing. “We saw an uptick with U.S. soybean export sales. Corn exports are actually behind a little bit, but I can’t help but think we’ll start to see that uptick here soon.”
On the other hand, a weaker dollar makes imports more expensive. That isn’t great for American companies that rely on imported goods, per Dartmouth’s Teresa Fort.
“Let’s think about certain computer and electronics manufacturing, where a lot of the inputs come from overseas,” she said. “Those firms might be relatively worse off as they see the cost of those inputs go up.”
And higher input costs can be a drag on a company’s productivity and employment.
Correction (Dec. 6, 2022): An earlier version of this story included a quote from Dartmouth’s Teresa Fort, in which she misspoke about the effects of a rising dollar.