The surging U.S. dollar is making it near impossible to afford anything in other countries

The cost of living in Cairo has risen so much that security guard Mustafa Gamal has had to send his wife and one-year-old daughter to live with his parents in a village 70 miles south of the Egyptian capital to save money.

Gamal, 28, stayed behind, working two jobs, sharing an apartment with other young people and eliminating meat from his diet. “The prices for everything have been doubled,” he said. “There was no alternative.”

All over the world, people share Gamal’s pain and frustration. An auto parts retailer in Nairobi, a baby clothes seller in Istanbul, and a wine importer in Manchester, England, have the same complaint: A rising US dollar is weakening their local currencies and contributing to skyrocketing prices for essential goods and services. This is compounding financial hardship at a time when families are already facing food and energy shortages due to the Russian invasion of Ukraine.

“A strong dollar makes a bad situation in the rest of the world worse,” says Eswar Prasad, a professor of trade policy at Cornell University. Many economists fear that the dollar’s sharp rise will increase the likelihood of a global recession sometime next year.

The dollar is up 18% this year and hit a 20-year high last month, according to the ICE US Dollar benchmark index, which measures the dollar against a basket of key currencies.

The reasons for the dollar’s rise are no secret. To counter rising US inflation, the US Federal Reserve has raised its benchmark short-term interest rate five times this year, signaling that further hikes are likely. This has led to higher yields on a wide range of US Treasury and corporate bonds, attracting investors and pushing the US currency higher.

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Most other currencies are much weaker in comparison, especially in poor countries. The Indian rupee is down nearly 10% against the dollar this year, the Egyptian pound is down 20%, and the Turkish lira is down a staggering 28%.

Celal Kaleli, 60, sells baby clothes and diaper bags in Istanbul. Because he needs more lira to buy imported zippers and liners at dollar prices, he has to raise prices for Turkish customers who are struggling to pay him in the plummeting local currency.

“We are waiting for the new year,” he said. “We will review our finances and downsize accordingly. There is nothing else we can do.”

Rich countries are not immune. In Europe, already headed for recession amid rising energy prices, a euro is worth less than $1 for the first time in 20 years, and the pound sterling is down 18% year-on-year. The pound recently flirted with dollar parity after new British Prime Minister Liz Truss announced huge tax cuts that roiled financial markets and led to the ousting of her finance minister.

Normally, countries could benefit from falling currencies as it makes their products cheaper and more competitive abroad. But right now, any gains from higher exports are muted as economic growth stutters almost everywhere.

A rising dollar causes pain abroad in several ways:

— It makes imports from other countries more expensive and increases existing inflationary pressures.

— It’s squeezing businesses, consumers and governments that have borrowed in dollars. That’s because it takes more local currency to convert to dollars on loan payments.

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— It’s forcing central banks in other countries to raise interest rates to try to support their currencies and prevent money from leaving their borders. But these higher rates are also sapping economic growth and driving up unemployment.

Simply put, “The appreciation of the dollar is bad news for the global economy,” says Capital Economics’ Ariane Curtis. “This is one of the reasons why we expect the global economy to slip into recession next year.”

In a seedy Nairobi neighborhood known for repairing cars and selling auto parts, businesses are struggling and customers are unhappy. With the Kenyan shilling down 6% this year, the cost of fuel and imported parts has soared that some people are choosing to ditch their cars and take public transport.

“That was the worst,” said Michael Gachie, purchasing manager at Shamas Auto Parts. “Customers often complain.”

Floating currencies have caused economic pain around the world many times before. During the Asian financial crisis of the late 1990s, for example, Indonesian companies borrowed heavily in dollars during boom times – then they were wiped out when the Indonesian rupiah plummeted against the dollar. A few years earlier, a falling peso caused similar pain to Mexican businesses and consumers.

However, the rising dollar in 2022 is uniquely painful. It adds to global inflationary pressures at a time when prices are already skyrocketing. Disruptions in energy and agricultural markets caused by the war in Ukraine exacerbated supply shortages due to the COVID-19 recession and recovery.

In Manila, Raymond Manaog, 29, who drives the brightly colored Filipino minibus called the jeepney, complains that inflation – and especially the rising price of diesel – is forcing him to work more to make ends meet.

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“What we need to do to earn enough for our daily expenses,” he said. “If we used to drive our routes five times, we do it six times now.”

In the Indian capital New Delhi, Ravindra Mehta has been a successful broker for American almond and pistachio exporters for decades. But a record fall in the rupee — on top of higher raw material and shipping costs — has made the nuts much more expensive for Indian consumers.

In August, India imported 400 containers of almonds, up from 1,250 containers a year earlier, Mehta said.

“If the consumer doesn’t buy, it impacts the entire supply chain, including people like me,” he said.

Kingsland Drinks, one of the UK’s largest bottlers, has already been pressured by higher costs for shipping containers, bottles, closures and energy. Now the skyrocketing dollar is driving up the price of the wine it buys from vineyards across the United States — and even from Chile and Argentina, which like many other countries rely on the dollar for global trade.

Kingsland has offset some of its currency costs by entering into contracts to buy dollars at a fixed price. But at some point “those hedges run out and you have to reflect the reality of a weaker sterling against the US dollar,” said Ed Baker, the company’s chief executive.

Translation: Soon, customers will only have to pay more for their wine.

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