The market mayhem of the past several weeks hasn’t been limited to stocks and bonds. Since the beginning of the year, the value of the U.S. dollar relative to other currencies has tumbled by around 10% from its January peak, with much of the decline taking place after President Donald Trump began implementing a wide range of tariffs.
“Investors have been spooked by Trump’s recent moves in the global economy, and they’ve moved away from investing in U.S. Treasurys,” says Michael O. Moore, a professor of economics and international affairs at George Washington University.
The result? A slumping greenback.
Quick vocab lesson: A weak dollar means that the value of our money is worth less compared to other major currencies. By contrast, a strong dollar means that our money is worth more. To put it in an exchange-rate scenario, if you wanted to exchange $100 for euros today, you’d get about €88. If you’d exchanged that same $100 back in January when the dollar was high, you’d have gotten about €97.
While a lower-value dollar in global currency-market terms isn’t the same as an erosion of purchasing power due to inflation, the combination of the two means Americans’ budgets are in trouble, according to Michael L. Walden, an economics professor at North Carolina State University.
You might think that if you don’t buy or sell stuff internationally, “it’s not a big deal,” he says. But before you breathe a sigh of relief, Walden notes that this isn’t as cut-and-dried as it might seem. Even if you don’t have plans for an international vacation or a new foreign car in your future, you could see price increases in a variety of products from foreign manufacturers.
Tariffs are already projected to add $3,800 to the average family’s costs this year, according to one estimate. A weak dollar compounds this impact. And unlike tariffs, which can have carve-outs or exclusions, the impact of a weaker dollar hits across the board.
“A weaker dollar is going to make everything we import more expensive,” says Dann Ryan, managing partner at Sincerus Advisory. “We’re already seeing people have a little bit of sticker shock,” he says, noting that clients are holding onto their cars for longer and readjusting vacation plans to stay stateside to avoid exposure to fluctuating exchange rates.
Who would want a weak dollar?
The president, for one. Trump has long been a proponent of a weaker dollar, a stance that ties in with his goal of reestablishing American manufacturing prowess. “As your President, one would think that I would be thrilled with our very strong dollar. I am not!” he posted on Twitter (now called X) in 2019.
In theory, a weak dollar boosts the fortunes of companies — and the people who work for them — that sell goods exported and purchased in other parts of the world, because those exports become cheaper to buy when the dollar is weak.
In reality, trade experts say it’s not that simple. Decades of globalization have tied American industries to overseas partners and suppliers. The international nature of automotive, electronics and other manufacturing supply chains means that even products nominally made here probably include imported raw materials or components.
On top of that, Trump’s trade war has raised the prospect of companies implementing reciprocal tariffs on American imports in retaliation to the White House’s policies. Burgeoning anti-American sentiment could also depress U.S. exports, with evidence of a falloff in international tourism one early indication.
Experts warn of potential long-term economic damage
Pricier cars and canceled travel bookings aren’t even the worst of it.
“For a long time, the U.S.’s biggest export has been Treasurys,” or government-issued debt, Ryan says. “Tied into that has been a sense of stability and confidence — and that’s just been shaken.”
U.S. Treasurys have enjoyed the status of being the world’s de facto safe haven for the past several decades, which allows the government to run deficits and issue new debt more easily and cheaply compared to other countries (even during periods of global economic turbulence).
“Safety is a relative thing. If all options are bad, the U.S. is a better place to be,” Moore says.
A chaotic rollout and ever-shifting pronouncements on tariffs are prompting investors to reexamine that conventional wisdom.
“The direction of this change is not normal — chaos and uncertainty usually drive investors to the dollar and not away from it,” Peter Petri, professor emeritus of international finance at the Brandeis International Business School, says via email. “The dollar is usually seen as the world’s safest currency. But today’s uncertainty is so closely tied to U.S. markets that other currencies and even gold look like safer bets,” he says.
“None of this is good for U.S. consumers, so let’s hope that the dollar’s decline stops.”
More from Money:
‘No Place to Hide’: Where and When Trump’s Tariffs Will Hit Your Wallet
Which Is Worse: a Recession or a Bear Market?
Our team conducts thorough research on all the brands listed on our website and may receive compensation from our partners. This research and financial considerations may influence how these brands are displayed. Please note that not all brands are included in our research. To learn more, please visit our website.
The recent market volatility has not only affected stocks and bonds, but also the value of the U.S. dollar compared to other currencies. Since the beginning of the year, the dollar has dropped by approximately 10% from its peak in January, with much of the decline occurring after President Donald Trump implemented various tariffs.
According to Michael O. Moore, a professor at George Washington University, investors have been spooked by Trump’s actions in the global economy and have shifted away from investing in U.S. Treasurys. This has resulted in a weaker dollar.
To clarify, a weak dollar means that the value of our currency is lower compared to other major currencies, while a strong dollar means the opposite. For example, if you were to exchange $100 for euros today, you would receive about €88. However, if you had exchanged the same $100 back in January when the dollar was stronger, you would have received about €97.
While a weaker dollar in the global currency market may not directly affect purchasing power due to inflation, it can still have a significant impact on Americans’ budgets, according to Michael L. Walden, an economics professor at North Carolina State University. Even if you do not have plans for international travel or purchases, you may still see price increases in products from foreign manufacturers.
Tariffs, which are already projected to add $3,800 to the average family’s costs this year, are compounded by a weaker dollar. Unlike tariffs, which may have exemptions, a weaker dollar affects all imported goods.
Dann Ryan, managing partner at Sincerus Advisory, explains that a weaker dollar makes everything we import more expensive. He notes that clients are already experiencing sticker shock and are adjusting their spending habits, such as holding onto their cars for longer and changing vacation plans to avoid exposure to fluctuating exchange rates.
Interestingly, President Trump has long been a proponent of a weaker dollar, as it aligns with his goal of boosting American manufacturing. In a tweet from 2019, he stated, “As your President, one would think that I would be thrilled with our very strong dollar. I am not!”
In theory, a weaker dollar can benefit companies and their employees who sell goods internationally. However, it can also have negative effects on the overall economy and consumers.
Source:Read More