Since the pandemic hit in 2020, the global economy has been affected. This, in turn, had an effect on currency values, specifically causing volatility in the market.

The US dollar has peaked several times in the last couple of years and is still going strong. 

What has caused the US dollar to peak? When will it slow down? What are the effects of this?

In this post, I'll answer these questions and decode the rise of the US dollar and its implications on businesses.

Let's get started.

Has US Dollar Peaked in the Last Year?

Currency values fluctuate all the time and the US dollar is no exception. You can't believe that the US dollar has peaked based solely on online buzz, but need to get solid data to understand how it has faired.

After all, even experts you trust make statistical errors. 

Here's a chart showing the fluctuation of the US dollar over the last year.

As you can see that the US dollar peaked in October-November 2022 but has been falling since December. Still, if you compare it with one year ago, you can safely say that the US dollar has strengthened over the last year.

Now that we've got that out of the way, let's discuss why it has peaked and what are the implications.

Why is the US Dollar Strengthening?

A poor growth outlook, increasing federal rates, and fragile risk sentiment are some of the factors behind the strong US dollar.

Let's discuss some of the causes behind the peak of the US dollar.

Federal Rates

The US federal funds rates were increased from almost zero at the beginning of 2022 to over 3.75% by November. This was in response to the growing inflation in the country.

A strong dollar can offset the inflationary pressure in the country and boost consumer spending. As such, inflation and forex are two factors that affect the currency market and these are behind the strengthening US dollar as well. Thankfully not all business management tools are expensive. There's free procreate glitter brushes and tools that you can use to design graphics for your business and take it further even in this dim market.

Economic Uncertainty

There has been a global economic downturn and uncertainty since 2020 and though the US economy is not doing great, it's comparatively better than many. 

This makes the US dollar a safe bet and preferred choice for international trade, which is another reason why it's going strong. In fact, the US dollar is one of the most traded currencies in the forex market.

Not just trade, countries are buying US dollars and selling off their own currencies for risk mitigation. Amid economic and geopolitical uncertainty (read the Ukraine-Russia war), the US dollar has emerged as the safest currency worldwide.

What are the Implications of a Strong Dollar on Businesses?

International businesses that earn a lot of revenue from foreign currencies may suffer as they'll get less dollar equivalent in revenue. Companies that depend on exports from the states may also suffer.

The fluctuations in dollar value also create a need for businesses to use good SmallBusinessHQ accounting software like Zoho Books to accurately measure their revenue, costs, and expenses.

The cost of dollar debts also increases with a strong dollar, adversely affecting certain businesses.

The flip side, however, is that companies that import from other countries to the US will be at an advantage. Additionally, multinational businesses that do business in the US but are based somewhere else will also benefit from a strong dollar.

Overall, the business impact of a strong dollar may be more negative than positive for many companies. If your business is suffering due to this currency volatility, you need to find other ways to stay profitable.

For example, you can utilize specialized tools for lead generation, automation, and more to enhance the efficiency of your day-to-day operations. Additionally, you may need to implement cost-cutting measures to counterbalance the adverse effects of a strengthening dollar.

While the impact on businesses is still mixed, the impact of a strong dollar on other economies is more or less negative. That's why efforts are being made to stop the US dollar from peaking again and control the federal rates.

These changes, however, will take time to show results and the US dollar will still remain comparatively stronger than most currencies.

Wrapping Up

The US economy witnessed rising inflationary pressures during 2021-2022, which led to an increase in federal rates. This was one of the key reasons why the US dollar peaked in 2022.

Other than that, economic and geopolitical issues like the Ukraine-Russia war also caused global uncertainty. Due to this, many countries chose the US dollar to be the safest bet for investment and international trade.

All these factors are behind the recent rise in the value of the US dollar.

However, the rising dollar value was a cause for concern for many and actions are being taken to curb its continued rise. As a result, the rise of the US dollar slowed down a bit in January 2023, but it is still quite strong.

If your business is affected by these currency fluctuations, you need to hedge yourself by taking offsetting actions. Good luck!