How US Dollar Strength May Hasten the Descent Back into Global Recession

The US dollar has strenghtened steadily since January 2021, but the pace of appreciation accelerated as the Federal Reserve (Fed) hiked interest rates to combat inflation. Given 41-year-high inflation readings, the Fed is expected to continue raising interest rates over the course of this year and into next year. The persistent and aggressive interest rate hikes likely will result in continued US dollar strength relative to a broad basket of other currencies. 

Along with protracted supply chain disruptions, the war in Ukraine, and bad weather events, the strong US dollar is another source of inflation for many economies. Consequently, higher inflation is forcing central banks spanning the globe to engage in more aggressive monetary policy tightening to wrestle inflation to the ground. Hence, the risk of slower global growth and even another global recession rises with further US dollar appreciation. 

Against this backdrop, businesses should gird themselves for another patch of global weakness over the next nine to 12 months. Hence, executives should seek ways to reduce input costs and protect profit margins proactively, including increasing efficiency, automation, and remote work when applicable; renegotiating contracts; purchasing in bulk; capping hiring plans; limiting wage increases; and applying discretionary spending cuts. 

For more details, please see The Good, Bad, and Ugly of US Dollar Strength.