When the Federal Reserve decides to increase interest rates, they are driving demand for the US Dollar (USD). Simply put, this is because investors will want to purchase US Government bonds. As seen from the picture below, the yield of 10-Year Notes continues to increase over the past three months. Through all of this, it appreciates the dollar and makes it a stronger currency versus other currencies (Example: Euro).
So Jakob… what does any of this mean to me? Well, I am glad you asked! With the dollar appreciated, it is making domestic goods/services more expensive while making foreign goods/services less expensive. Thus, decreasing US exports and increasing imports. However, the dollar’s strength may fall in the near to long-term future. With inflation where it currently is, the US economy may soon be at a standstill. In the meantime, we must await word from the Federal Reserve on how to hope to curb inflation.
Like what you read? Check out my latest newsletter post about the USD's strength, the safety of EV's autopilot, and the new MacBook Air!