Implications of a Stronger US Dollar
Despite an annualized inflation rate of 3.4% in 2023 (still above the Fed’s target of 2%) and interest rates holding higher for longer, the US economy has continued to grow, and so has the dollar’s value. The US Dollar Index has reported a 2.8% increase so far in 2024 when compared to various foreign currencies.
What does this mean for Americans? When traveling abroad, individual Americans will have higher purchasing power as they get more for their dollar. Domestically, imports will be cheaper for US companies, in theory supporting cheaper imported goods for American consumers. However, for American companies who conduct their business abroad, revenue is likely to go down as they get less US dollars back after converting from their place of business’s currency.
Will this higher dollar value last? Many factors can contribute to the dollar’s value fluctuating. If domestic interest rates stay high, it is more likely to go up. If foreign interest rates go down, such as the European Central Bank, the US dollar would continue to increase in value. But once the Fed prepares to lower rates, which some predict to happen in May or June, the US dollar’s value would begin to depreciate.
With this in mind, business owners, especially those operating outside the US, should keep a keen eye on the dollar’s value and how it can affect your bottom line. An easy way to do so is by regularly checking into the XQ CPA blog and following our social media for the latest business and tax news.
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