How a Strong US Dollar Affects Your Wallet

The dollar’s strength is good for consumers in some ways, but hurts in others

A woman is paying at a coffee shop. The cashier is a young man. They are smiling at each other.
Photo:

RyanJLane / Getty Images

The U.S. dollar has rarely been more valuable compared to other major currencies—but whether that’s a good or bad thing for your wallet depends a lot on who you are and what you’re spending your money on. 

The greenback was worth 0.92 British pounds on Wednesday, just shy of the all-time high of 0.93 pounds hit in 1985. A dollar bought 1.03 Euros that day, the most since 2001. The dollar was also the strongest against the Japanese Yen since 1998, and has been gaining against the Chinese Yuan, reaching its highest since 2008. In short, a dollar goes a lot farther in foreign countries than it did at the beginning of the year.

While that may sound like a good thing if you’ve got dollars in your pocket—especially at a time when rampant inflation is eroding the value of money—it is very much a double-edged sword, and could help or hurt you depending on your situation.

“It's a very complex thing because the same person can be both hurt and helped by the strong dollar,” said Michael Klein, a professor of economics at Tufts University.

Why Is the Dollar Appreciating?

There are several reasons for the dollar’s recent rise, economists say. First, the Federal Reserve’s recent rate hikes have driven up yields on U.S. treasury bonds and made them a more attractive investment. Secondly, the U.S. economy, despite recession fears, has better prospects for economic growth than other parts of the world, and has been less damaged than Europe has by the war in Ukraine. As a result, foreign investment has flowed into the U.S. economy, which helps boost the dollar’s value.

Where a Strong Dollar Helps

The strong dollar drives down the cost of importing goods from foreign countries. Indeed, the price of imports fell 1% in August, according to data from the Bureau of Labor Statistics. That’s especially helpful for American consumers, who buy a massive amount of consumer goods manufactured abroad, especially from China.

It also makes it cheaper for American companies that buy materials from overseas, which can help companies that rely heavily on imports, Klein said.

A strong dollar is also a clear benefit to American tourists, who will find their dollars going much further abroad than in years past. The difference is especially stark in Britain, where dollars and pounds can now be traded at close to a one-to-one ratio. As recently as 2008, it took $2 to get 1 pound sterling.

“It would be a good time to go visit Britain,” Klein said. 

Where a Strong Dollar Hurts


On the flip side, the strong dollar will probably make the U.S. a less appealing destination for foreign travelers, and that will damage the U.S. tourism trade, and the hospitality business as a whole, Klein said. 

Similarly, U.S. companies that mostly export goods rather than import them  will see the price of their products rise overseas, making them a harder sell. 

And while the effects of a strong dollar on the U.S. economy are mixed, they’re more firmly in the “bad” camp for developing countries, who face a double whammy of paying more to import commodities like oil, which are sold in dollars, and foreign debt becoming costlier to repay, according to a blog post by an economist at the World Bank.

 Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

Was this page helpful?
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Google Finance using Morningstar data. “United States Dollar to Pound Sterling.”

  2. Google Finance using Morningstar data. “United States Dollar to Euro.”

  3. Google Finance using Morningstar data. “United States Dollar to Chinese Renminbi.”

  4. Google Finance using Morningstar data. “United States Dollar to Japanese Yen.”

  5. Econofact. “The Strong Dollar and the War in Ukraine.”

  6. Charles Schwab. “The Strong Dollar: Can It Continue?

  7. Bureau of Labor Statistics. “U.S. Import and Export Price Indexes summary.”

  8. Office of the U.S. Trade Representative. “Countries and Regions.”

  9. World Bank. “Three ways a strong dollar impacts emerging markets.”

Related Articles