exports more expensive for foreign buyers. That’s what is happening now and the Econ 101 impact is that the strong dollar makes imports relatively cheaper for buyers in the U.S. The dollar strengthens as the investment funds pour in until the point (to simplify quite a lot - experts please forgive me!) where the dollar is so expensive that the risk that it will reverse course and fall exceeds the interest rate premium that it earns. Rising interest rates attract short term investment funds from abroad. interest rates that the Federal Reserve has implemented and is expected to continue this year. There is plenty of news right now to explain the dollar’s appreciation relative to most of the world’s currencies and the most important explanation are rising U.S. I remember one headline that read “Dollar Rises on No News.”
There are dozens of forces that can shift exchange rates - I used to joke that the worst job in the world was the person who had to write the “exchange rate” headline for the Wall Street Journal every day because he or she had to boil down dozens of factors into a few words. But sometimes there is a strong secular movement that shakes things in a big way and the recent sustained rise in the U.S. It is a fact of life in international trade and finance.
The Economist newspaper’s most recent analysis of global exchange rates was released a few days ago and the results are noteworthy, especially for those of us in the wine trade where exchange rates are an important factor in both import-export flows and in the cost of imported bottles, corks, equipment, etc.Įxchange rates are in constant motion - most currency values change at least a bit - and sometimes quite a lot more! - on a daily basis.
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