The Federal Reserve’s interest rate hikes have driven the U.S. dollar to its highest level in decades, treating American tourists to bargains in Europe and Asia, putting imported goods on sale at home and squeezing the economies of several U.S. trading partners, The Washington Post reported. The dollar reached multi-decade highs against major currencies including the euro and Japanese yen and is almost certain to head higher still. With consumer prices rising by 9.1 percent over the past year — the fastest pace since 1981 — the Fed has signaled additional rate increases are coming, starting July 27. The robust greenback is evidence that the Fed’s anti-inflation campaign is starting to gain traction, even as prices overall continue ticking up. But it’s a different story overseas, where currency weakness in Europe and the United Kingdom — the flip side of the dollar’s strength — is making the fight against inflation even tougher. As years of low inflation and low interest rates have given way to a more volatile era, currencies are trading in a wider arc. In particular, the war in Ukraine, which upended global food and fuel markets, has dealt more punishing blows to Europe and many developing countries than it has the U.S., which helps explain the dollar’s current shine. The more muscular dollar is straining budgets for countries that are heavily dependent upon oil imports, which are priced in dollars, such as India, South Korea and Thailand. Several developing countries that need financial infusions to cover their debt payments, like Ecuador and Tunisia, also are hurting as the U.S. currency climbs. The dollar’s outperformance — up 13 percent this year in the DXY Index — reflects the strength of the U.S. recovery from the pandemic, which was faster than in Europe or Japan.
