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    How the Weak US Dollar Can Impact International Business in 2023

    Markets have shifted focus to the interest rate policies of other major central banks rather than the Federal Reserve.

    Jan 29, 2023 (Upd: Feb 6, 2024)  

    The US dollar has softened in the first month of 2023 compared to its rival currencies perhaps due to a decrease in influence from the Federal Reserve.

    Markets now seem to be focusing more on the interest rate policies from other major central banks.

    The below list illustrates the weakness of the US dollar so far this year. We can see that the value of the US dollar has really only increased against one of the 20 most traded currencies, the South African rand (ZAR) by 1.4%.

    US dollar Early 2023 Weakness

    South Africa – ZAR
    Hong Kong – HKD
    Norway – NOK
    Switzerland – CHF
    Poland – PLN
    Taiwan – TWD
    Sweden – SEK
    Canada – CAD
    India – INR
    Denmark – DKK
    Eurozone – EUR
    New Zealand – NZD
    Singapore – SGD
    Japan – JPY
    South Korea – KRW
    China – CNY
    United Kingdom – GBP
    Mexico – MXN
    Australia – AUD
    Thailand – THB


    USD 1 month performance vs G20 currencies – 2022-12-29 to 2023-01-29

    On the other hand, the largest falls in the exchange rates are for the Australian dollar (AUD) where the value of the US dollar has decreased by 5.2%, the Thai baht (THB) by 5.3%, and the Mexican peso (MXN) by 3.5%. Other notable falls include the Singapore dollar (SGD) by 2.3%, the Japanese yen (JPY) by 2.4% and the Chinese yuan (CNY) by 2.6%.

    The US dollar index shows that USD has been losing its value lately and has been in decline since mid-October against the USDX basket of major currencies. It is currently trading at levels which were seen back in May 2022, after a fourth consecutive monthly drop.

    US Dollar Index – 1 Year chart

    What is Causing the US Dollar Weakness and How Will it Affect International Markets?

    Last year, when the value of the US dollar increased, it caused problems for economies all over the world, especially for developing countries. This is because these countries often pay for imports using dollars and also borrow money in dollars. Because of the dollar’s importance in global finance, when its value goes up, it creates pressure on these economies.

    However, in 2023 the outlook has become more positive, which has made the yen and the euro stronger. They are now at their highest levels since the spring of 2022. Next week, the Fed, ECB and Bank of England will make decisions about money and this could give more information about whether the Fed will lose its position as the leader this year.

    In 2022, everything was going well for the dollar. The Fed was pushing up interest rates at record pace plus the war in Ukraine and the strict policies in China also helped the dollar.

    But in 2023, all of these major events are no longer having as large an impact and this is helping other currencies at the expense of the US dollar.

    How Can Global Businesses Prepare for Further Decline in the Value of the US Dollar?

    The weakening of the US dollar has created a challenging environment for businesses attempting to manage their foreign exchange risk. With a weakened currency comes increased volatility and potential losses in the foreign exchange market. To help businesses protect themselves from risk, it is important to employ strategies that will minimize the impact of a weak US dollar on their operations, such as diversification, hedging, and strategic planning.

    Global businesses can prepare for a further decline in the value of the US dollar by taking several steps:

    1. Diversify currency risk: By holding a mix of currencies, businesses can reduce their risk of losing value due to a decline in the value of the US dollar.
    2. Hedge currency risk: Businesses can use derivatives like currency forward contracts, options, and swaps to lock in exchange rates and protect against currency fluctuations.
    3. Review and adjust pricing strategy: Businesses should regularly review their pricing strategies and adjust them if necessary to account for changes in currency values.
    4. Monitor and adjust supply chains: Businesses should monitor their supply chains and adjust them as necessary to reduce their exposure to currency risk. This can include sourcing goods and services from countries with stronger currencies or reducing the number of suppliers who bill in US dollars.
    5. Monitor debt and financing: Businesses should monitor their debt and financing and consider ways to reduce their exposure to currency risk.
    6. Communicate with stakeholders: Businesses should communicate regularly with stakeholders, including customers, suppliers, and investors, to keep them informed of any changes and the steps they are taking to manage currency risk.

    It’s important to remember that currency values can fluctuate, and it’s not possible to predict which way they will go. Businesses should regularly monitor currency markets and adjust their strategies as necessary.

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    What Opportunities Will be Created for Investors & Traders if The US Dollar Weakens?

    If the US dollar weakens further, it can create several opportunities for investors and traders:

    1. Currency trading: As the value of the US dollar declines, investors and traders can take advantage of this by buying currencies of other countries whose values are increasing.
    2. Commodities: A weaker US dollar can make commodities more expensive, which can lead to an increase in their prices. This can create opportunities for investors and traders to invest in commodities such as gold, oil, and agricultural products.
    3. Foreign stocks: As the US dollar weakens, the value of foreign stocks may increase, creating opportunities for investors to invest in foreign companies.
    4. Emerging markets: A weaker US dollar can make emerging markets more attractive to investors as they may offer higher returns.
    5. Real estate: A weaker US dollar can also make foreign real estate more affordable for US-based investors, which can create opportunities to invest in properties outside the US.
    How the Weak US Dollar Can Impact International Business in 2023 posted under: Guides News  

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