Foreign exchange is one of the most prevalent ways of trading, but not every individual feels comfortable venturing into this. The reason behind this is the unpredictable nature of exchange rates. However, in certain cases, this volatile nature is a window to gain immense profit.
The most recent example of this is the strengthening US Dollar. However, this growing strength only poses one question, “is it a good time to sell Dollars?”
Well, to find out the answer to that, you first need to understand what caused this sudden growth in strength.
How Have the Dollars Strengthened?
There are two major reasons behind the USD gaining such immense importance. These are:
- Fed’s Recent Declaration
The most prominent reason behind US Dollars becoming this strong is the new interest rate policy introduced by the Federal Reserve.
The central bank has raised its rates about three times, lying between 1.5% and 1.75%. This is a drastic hike from its initial target interest rate of 0% to 0.25% during the beginning of the year. Moreover, it does not wish to stop there and has assured to raise it even more.
This decision to raise interest rates has bolstered the US’s status as World Reserve Currency. On the other hand, the other developed countries have shown little to no progress, including the European Central Bank.
- International Investors
Another driving force here is the current behaviour of international investors. They are choosing the US over other developed countries not just because of this rise in the rate but the volatile situation of other prominent countries as well.
The recent war in Ukraine is one of the most significant catalysts for this. Russia controls the natural gas supply across Europe that its residents use to heat homes and power factories.
However, after its aggressive actions, it is not certain if Europe will continue to get natural gas or if the supply will get considerably constrained. Should the latter happen, it would cause a substantial adverse effect on economic growth.
The US has made complete use of this unprecedented situation and placed itself as a reliable currency in front of international investors. This has improved its value so much that it is now almost in parity with EUR.
US Dollar & Euro Parity
In the second and third week of July 2022, US Dollar completely changed its value across the international currency board. When the market closed on 19th July, one could purchase a Euro for just $1.02. Now USD to EUR almost has a 1:1 exchange rate; you can look at it as a straight 15% discount from the previous exchange rates.
Apart from being at parity with EUR, USD has also almost closed the gap between its differences in value with the GBP. And as far as currencies like Yen, Yuan, Won, etc. are concerned, the American currency has completely overpowered it.
While this has both its pros and cons, US citizens would mostly benefit from it.
What Does This Mean for US Citizens?
This increase in value brings forth two significant advantages for the citizens of America, as it has made two things substantially cheaper.
- Travelling Internationally
There can be no better timing than this for the US Dollar to gain strength. The world is facing severe economic inflation, making it difficult for individuals to travel across countries as they used to.
However, that is not the case for US citizens. The newly strengthened USD offers them significant purchasing power overseas. This is because the US’s economy does not noticeably influence foreign countries.
A strong Dollar would fetch a good exchange abroad right now when converted into local currencies.
This is a great time to travel to European countries as you would get an almost equal amount when converting Dollars to Euros. Even if you are not travelling to any of the Eurozone countries, you would still get a substantial amount when buying foreign currency against your USDs in other European countries.
For example, when travelling to the UK, you would get more Sterling Pounds (GBP) for your Dollars than in recent years.
This is why now is the best time to sell your Dollars and travel abroad using countries local currencies.
- Importing Goods
The cost of imported goods would be significantly low if the exporter country’s currency value is lesser than the USD. Hence, this is a great time to make international purchases.
This is especially great news for American car enthusiasts as most of the major vehicle exporting companies are European. Moreover, as Euros are now in parity with USD, one has to pay a lot less for luxury cars as compared to a few months ago.
This price drop is not limited to vehicles, and other European novelties will also become more affordable for Americans.
Is it a Good Time to Sell Dollars for Foreigners?
While it is clear that Americans would gain substantial profit by selling USD right now, how will it affect non-US citizens holding Dollars?
The answer to this lies in the long-term effects of this drastic hike in value. Economists are predicting a sharp fall in value just as it has increased. This would happen because Americans would show more interest in foreign goods (due to the reasons mentioned above), raising their demand tremendously.
On the other hand, a strong USD would mean expensive local items, which would considerably decrease their desirability. As a result, the US export industry would have a huge setback unless there is an eventual equilibrium in value.
So, if asked, “is now a good time to sell Dollars for foreigners?” the answer is yes. However, as no one knows how fast the drop in value will take place, it is best to make the most out of the USD you have when you can.
If you possess USD and are holding onto it to sell it at the best possible moment, now is your time. Take advantage of the strengthened value and sell Dollars for your local currency. While Euro is at almost parity, if you belong to a non-EU European country like the UK, you can make even more GBP or other currencies against the Dollar in your possession.