By David Clark
The US dollar index (DXY) is currently just over 105 which is slightly lower than the 20 year high of 112 achieved in 2022. The Dollar Index measures the US dollar against an average of six other major currencies, including the euro, pound and yen.
The US economy continues to grow and strengthen which continues to drive the dollar rally. Forecast experts went from a “hard landing” from the effects of Covid and inflation to a “soft landing” in 2024.
As unemployment continues to be the lowest in over 50 years, energy costs have become more stable in the US and commodity pricing has eased. In comparison, other major economies in Europe and Asia continue to struggle with growth and debt.
Governments and firms in many countries often borrow money in US dollars rather than in their own currencies because it tends to be more stable. As the dollar increases in value, it becomes more expensive to repay those debts with local currencies. This in turn helps drive up the US dollar further. Many countries try to boost the value of their currencies by increasing interest rates which helps hold down rising prices, but it also makes financing more expensive.
How does the strength of the dollar affect small business SME exports?
Changes in currency exchange rates can affect the prices of goods and services, the value of local currencies and the balance of trade. Simply put, when the US dollar is low in comparison to other currencies, export transactions are cheaper for the foreign buyer. But because the dollar is so high, it makes it difficult for those foreign importers of US goods.
For US small business exporters trying to find customers that can afford the increased cost, the relationships will continue to be tough. Once the dollar starts to go lower, hopefully those customers will have the ability to buy more and give more US companies - especially SMEs – an opportunity to showcase why they are considered the benchmark in trade value.
David Clark
Vice President
ARI Global, Inc.
Trade Credit & Political Insurance
913-636-3425
LinkedIn: David Clark
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