Value of the U.S. Dollar, Explained

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What is the value of the dollar?
How much is the U.S. dollar worth now?
What determines the value of the dollar?
- Trade policy and geopolitical climate. Tension with foreign countries may lead to restrictive trade policy that tends to increase costs for businesses, which may decrease demand. Restrictive trade policies often lead to volatility in investment markets. When there’s instability in global financial markets, the dollar tends to increase in value since it’s considered a safe haven for investors. But when the economy of the U.S. is itself unstable, then investors may sell-off U.S. assets, which weakens the value of the dollar.
- Monetary policy. Interest rates influence investments, which in turn impact the dollar value. High interest rates are more desirable to investors so the demand for the dollar increases. Lower interest rates create less demand for the dollar so the value declines.
- Inflation. High inflation erodes purchasing power, which leads to a decline in dollar value.
- Economic indicators. Measures of economic health including growth, inflation and employment data all influence market sentiment, consumer sentiment and economic forecasts. Currency tends to be valued higher in more stable economic periods.
- Market sentiment. All of the above can impact investor assessment and expectations, which influence how investments are made. Positive market sentiment about the U.S. economy can increase the value of the dollar and vice versa.
What happens when the dollar weakens?
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- Purchasing power goes down, which means goods and services become more expensive for U.S. consumers.
- International travel gets more expensive for Americans.
- U.S. exports become cheaper for foreign buyers.
- Investment in U.S. assets like stocks and bonds may decline.