4 ways the dollar exchange rate affects your money

You may have heard of the skyrocketing value of the US dollar in international currency markets. Unless you’re a forex trader, you probably don’t give it too much thought. Maybe you should. The greenback is the default international medium of exchange, no matter what cryptocurrency traders say. Oil is traded in dollars, for example, and some countries, like Saudi Arabia, peg their currency to the dollar.

Why is the dollar so strong? Despite rising inflation and falling stock market, the US economy remains the largest in the world, with gross domestic product (GDP) weighing nearly $23 trillion, according to the World Bank. China, the second-largest country by GDP, trails by more than $5 trillion at $17.7 trillion, and Japan, the third-largest, at $5 trillion.

Compared to the rest of the world, the United States offers temptingly high yields, and money flows into these high yields, increasing the value of the dollar. A 10-year Treasury yields 3.83%, which may not seem like much. In Germany, however, a 10-year government note yields 2.09%. In Japan, the 10-year public debt yields 0.24%.​

Finally, the US dollar is backed by the full faith and credit of the US government, and the US has never defaulted on its debt.

With all that in mind, here are four ways booming money affects you and your finances.

1. It’s cheaper to travel abroad.

Visiting another country has additional benefits, aside from lounging on the French Riviera or drinking pints of beer in the UK. A year ago, it took $1.16 to buy one euro, the currency of 19 European countries (Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain). On October 7, it cost 98 cents to buy one euro, which means that a purchase of 100 euros today costs $18 less than a year ago.

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