US travelers may be rejoicing that a night out in Rome that once cost $100 now costs about $80, but it's a more complicated picture for multinational companies and foreign governments.
The greenback is up more than 10% in 2022 compared to other top currencies — near its highest level in two decades — as investors worried about a global recession have rushed to scoop up dollars, which are considered a safe haven in turbulent times. Adding to the dollar's appeal is the Federal Reserve's aggressive campaign of interest rate hikes to tackle decades-high inflation. That's made American investments more attractive, since they now offer higher returns.
It feeds capital flight. When a country's currency dramatically weakens, wealthy individuals, companies and foreign investors start withdrawing their money, hoping to stash it somewhere safer. That pushes the currency down even lower, exacerbating fiscal problems."If you're sitting in Sri Lanka at the moment and you're seeing the government is under pressure, you want to get your money out," Narain said.3. It weighs on growth.
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