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The US dollar is on track for its worst year in modern history

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124 points harambae | 1 comments | 04 Jul 25 06:47 UTC | HN request time: 0.938s | source
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forgotoldacc ◴[04 Jul 25 07:45 UTC] No.44462155[source]▶
Looking at the scale of a few years, the dollar has been insanely overvalued post-COVID.

Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point. Recently it's been bouncing around at nearly 1 euro=1 dollar.

Then there's the yen. Used to bounce around between 1 dollar = 100~110 yen. Recently reached 1 dollar = 162 yen.

The dollar losing its value is a return to the pre-covid norm. Lots of countries pumped money into the US to make money off skyrocketing stocks and high interest rates, and now they're pulling it back into their countries. It's a high that can't last forever. And if it did last forever, that would not be good for the world as a whole since it would mean every country is supporting the US at the cost of devaluing themselves.

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1. littlestymaar ◴[04 Jul 25 08:06 UTC] No.44462299[source]▶
> Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point

That's what inflation does.

People are routinely taught that inflation is the “decline of value of money”, but that's not the reality. Inflation is just the increase in consumer price, which is perceived as a decline in the relative value of the money, but its absolute value on foreign markets isn't (directly) affected by inflation.

And when the Central bank raise the interest rate to cool the economy down and temper inflation, then the absolute value of the money rises (because the higher the interest rates, the pricier the currency on the FX market). This increase in the currency value in turn also helps fighting inflation because it lowers the cost of imported goods.

So, indirectly, because of the central bank's reaction, inflation is actually increasing the absolute value of money, and this is what we saw in 2022 when the Fed raised the interest rates 9 month or so before the ECB start doing the same (because the inflation came in advance for the US compared to EU).