The dollar has soared since Trump's election win. Here's what that means for your wallet.
Matthew Fox
5 min read
Getty; Chelsea Jia Feng/BI
The US dollar has surged since Trump's election win, impacting consumers and their investments.
A stronger dollar boosts consumers' purchasing power and can even help lower inflation, but it hurts US exports.
S&P 500 firms face profit headwinds due to currency conversion challenges, which could ding stock prices.
The dollar has soared since Donald Trump's election win earlier this month, and a stronger US currency can have a big impact on consumers' wallets.
The dollar index, which measures the US dollar against a basket of currencies, has surged as much as 5% since Trump's win and is up as much as 8% since October 1, trading at its highest level in two years.
The dollar has gained on expectations for Trump's policies to potentially stoke inflation, which would force the Federal Reserve to keep interest rates elevated to counteract higher prices.
Higher rates spur greater demand for dollars from overseas investors, who invest them into higher-yielding US assets like Treasurys and other debt securities. Higher interest rates also lower the overall supply of dollars in the system by discouraging borrowing.
Here's how a stronger US dollar can impact consumers.
Consider a foreign vacation
A stronger US dollar ultimately means that your greenbacks have more purchasing power when paying for goods and services priced in other currencies.
A stronger dollar means that when you convert money into pesos, euros, or yen, you ultimately receive more of the foreign currency than you would under a weak dollar regime.
"A stronger dollar may help you feel like a free-spending prince with a hefty traveling budget while on an overseas vacation as the value of your dollar will go a lot further when converted to local currency, allowing you to enjoy upgrades to your lodging, food, entertainment, and excursions," Sam Stovall, chief investment strategist at CFRA Research told BI.
Get more 'bang for your buck' buying foreign goods
You don't even need to leave the country to benefit from a stronger dollar.
According to Rob Haworth, senior investment strategist at US Bank Wealth Management, foreign goods bought with a stronger dollar are typically "less costly given the rising purchasing power."
It is even possible that a stronger dollar could help lower domestic inflation, at least in the short term.
"In the near term, US dollar strength is pressing down on inflation and commodity prices in particular," Haworth told BI. "The stronger US dollar makes dollar-priced commodities more expensive for foreign buyers, hurting demand."
And lower demand ultimately means lower prices if supply is steady.
The price of a barrel of WTI crude oil is down 13% since it peaked at about $78 in early October. Other commodities like gasoline, copper, and soybeans, all key inputs for various goods, have moved lower since the dollar surge.
Foreign companies that export their goods to the US also have room to lower their prices, which could ultimately result in lower costs for consumers.
"With a strengthening dollar those countries experiencing a weaker local currency versus the USD will have a competitive advantage exporting to the US. We can buy their products for less than before solely due to the USD appreciation," Arthur Laffer Jr., president at Laffer Tengler Investments, told BI.
Stovall echoed those comments, saying consumers should "get more bang for your buck" when purchasing everyday items made overseas.
A strong dollar might not be great news for your investment portfolio
While a strong US dollar could be a boon for consumers' wallets when traveling abroad or buying foreign goods, it could be detrimental to investment returns.
That's especially true for US-based companies that generate revenues overseas.
Multinational companies sell their goods or services overseas in the country's local currency and then convert those profits into US dollars when reporting earnings. But if the dollar is strong and the local currency is weak, then they'll ultimately see weaker profits when converting the foreign currency into dollars — and lower profitability will weigh on stock prices.
It can be especially painful for US companies that produce their goods in America and then ship them overseas, as they likely have to pay for their input costs with a strong US dollar, sell them overseas in the weaker local currency, and then convert that currency back to dollars.
"Because the USD is getting stronger, US exports to those countries will be more expensive on a relative basis than before the currency appreciation of the USD," Laffer Jr. explained.
According to Stovall, about 40% of revenues from S&P 500 companies come from overseas operations.
"As a result, the higher dollar will likely result in lower profits from overseas operations, depressing the company's overall earnings," Stovall said.
Lower profits could negatively impact the economy if the strong dollar move is sustained and economic growth doesn't make up for the shortfall.
"In the long run, this could result in an economic slowdown, which may jeopardize one's job at a company with many overseas clients. As a result, the change in the value of the US dollar is typically a double-edged sword, helping your wallet in one way while adversely affecting your portfolio and livelihood in another," Stovall said.
While the dollar is higher since the election, it is still well below its 2022 peak of nearly $115 and 2001 peak of about $120.
