What is happening to the value of the U.S. dollar these days?

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It's possible to answer this question in any number of ways. There are many influences that affect the value of currency in international markets; and the dollar, being the standard and most widely-used and traded currency around the world, is affected by activity in other currencies.

For example, the recent BREXIT decision in the UK has affected world currency values, as this decision on the part of Great Britain to leave the European Union means there will be changes in their banking system. The value of the pound against the dollar experienced dramatic change when the results of this vote were announced a few weeks ago, and it is believed that as the process of leaving the European Union continues, the value of the pound will continue to be unstable.  Because London is a major banking and commerce capital of the world, it is a hub for world markets and the US-based markets respond accordingly to developments in the UK.

The dollar is currently fairly strong, possibly because the recent jobs report was fairly positive. The state of jobs and new construction are factors that afec the value of the dollar, as well as world events linked to terrorism. The reason terrorism affects world markets is that states of emergency affect world travel and tourism, which then impacts commerce directly.

The decision of the Federal Reserve to raise or lower interest rates is also a factor that affects the value of the dollar. The Fed has declined to raise interest rates for a number of years but financial forecasters are generally in agreement that interest rates will be going up fairly soon.

 

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Over the past year or so, the United States dollar has been appreciating against most other currencies.  You can see this trend in the graph in this link.  This graph shows that the US dollar has gotten much stronger when compared to a “basket” of currencies over the past year. 

There are a few different reasons why the dollar has been getting stronger.  One of these is discussed in the link below.  There, we are told that the dollar is getting stronger because the Fed has stopped buying so many government securities (this is what “quantitative easing” means).  When the Fed reduces its purchases it means that less money is pumped into the economy.  The money supply stops rising so fast and dollars are somewhat scarcer.  At the same time, other economies’ central banks are doing more quantitative easing, increasing the supply of their currencies.  When the supply of dollars drops and the supply of other currencies rises, we can expect to see an increase in the value of the dollar (all other things being equal).

So, the dollar’s value has been increasing for the past year or so and seems likely to continue to do so for at least a little while longer.

Last Updated by eNotes Editorial on
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