– How can inflation be hitting this hard in the US, when the dollar is getting stronger around the world when compared to other currencies like the Euro?
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Because “this hard” is actually less hard than almost everywhere else, Europe in specific has a precarious situation on its eastern border, so people are trying to stay as stable as possible, and the Dollar is the most stable option.
US might have an inflation rate, the annular rate was 8.6% in May 2022 but it is high in the Euro area too where it was 8.1% in May. If you compare things you cant just look at the number for one side, you need to consider both. It is also not as simple as exchange rate changes are just a result of inflation.
There is one huge difference between the US and Euro area, the dependence on Russian fossil fuels. Lots of European countries like Germany are very dependent on Russian gas. One major usage of it is heating in the winter. With the war in Ukraine and political move to not purchase from Russia in combination with threats from Russia to cut the supply.
The value of the Euro is in large part connected with the state of the European economy and will include the future expectation. So likely problem with gas supply this winter has an effect on it today.
One reason is because other countries are also experiencing inflation even higher than in the US.
Also remember that Europe is experiencing a war.
It’s currently contained to one area, but it is causing anxiety in the area and that devalues currency in the area and the US is less impacted by that compared to the euro and the ruble.
China continues to be impacted by their zero covid policy, which is a driver for the dollar being stronger relative to rmb.
So it’s a combination of factors.
Because the US dollar is the de facto reserve currency of the world (because it’s used to buy oil). It doesn’t matter how bad the fundamentals of the US economy or US dollar are, the rest of the world needs to hold tons of dollars/dollar denominated debt, to have the liquidity necessary to buy oil.
That demand strengthens the dollar when bad things happen, because every country decides holding a little more reserves is prudent (even when the bad thing is coming from the US. Pretty neat trick.
Inflation is hitting everywhere globally. It’s not just an American thing. Same supply chain constraints snd oil prices are an issue affecting all countries.
if anything it should be affecting them more, since the rest of the worlds got hit harder.
all nations that trade for oil need to keep a reserve of Us Dollars to be able to trade for it and in times of instability theyll deem it worth it ot hold a bit more of the currency: considering the current situation in Europe , this inflation is bound ot escalate further.
Because while you complain about the insane $5 a gallon for gas, I have to pay $10. So I don’t know what you mean with “this hard”
Exchange rates are not strongly correlated to inflation at all. Exchange rates are affected by people wanting to convert one currency to another, and protecting against domestic inflation is just one of many reasons someone might want to convert currencies.
The world overwhelmingly denominates debt in dollars. Tons of debt, even in foreign countries, is to be paid back in US dollars. When a global recession hits the value of the assets used as collateral for loans decreases (stocks, bonds, CDOs). In response to the decreased collateral value the debt holder needs to pay back some of the debt to avoid a margin call and liquidation of the underlying collateral. They need to get their hands on US dollars in order to pay it back. the world needs dollars to pay off those debt obligations
Another big reason is because the federal reserve raises their target interest rates on 10-year government bonds, which causes more investors to purchase US treasuries as a way to escape the volatility and uncertainty of riskier investments. A US bond is the “safest” investment in the financial world and a rise in interest payments on those bonds causes investors to purchase dollars to purchase bonds.
Because American greed is more powerful than currency fluctuations. They use higher world prices caused by war to justify gouging. Our oil that we produce is still as abundant as ever, but exporting It is more profitable, and then they claim shortages to jack up prices and profits at home.
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