The US dollar has not been so strong in nearly 14 years: Here's what that means for you

Life
ByJames Dennin

The value of the United States dollar climbed to its highest level in more than 13 years on Thursday — and even higher Friday.

The dollar has been rising steadily since President-elect Donald Trump's victory in last week's election, buoyed by hopes that Trump's promises to slash taxes and jack up infrastructure spending would lead to economic growth.

Another reason? Remarks from U.S. Federal Reserve Chair Janet Yellen suggest the economy is on strong footing and the central bank is likely to raise interest rates next month, according to a Reuters report.

Even just the expectation of higher interest rates can cause the dollar to rise, and enacted rate hikes tend to tamp down on inflation (which is when the dollar gets less valuable), though the relationship isn't always straightforward.

strong U.S. dollar, meaning when the dollar rises relative to other global currencies, is certainly nice if you're traveling abroad — it's pretty sweet to get nearly one Euro for a dollar while you're vacationing in Paris, after all — but there are other, more complicated consequences.

As you can see from the above tweet, stocks and other securities are actually trading down on the news. That's because depending on who you are, an expensive dollar isn't always great for business.

Here are the main impacts to understand.

You like a strong dollar if you're a U.S. tourist abroad. 

First, the good news: Tourism abroad is great when the dollar is strong.

If you're an American going on vacation overseas, then a strong dollar is your friend: Your dollars buy you more Euros or British Pounds, which by extension means you can afford more wine and rides on the London Eye.

"If you're traveling, it's a great opportunity to make your money stretch further," certified financial planner Michael Kay said in an interview Friday.

On the flip side, if you run a small business that thrives on tourism here in the U.S., then a stronger dollar can hurt you. 

That's because a stronger dollar means that fewer Europeans and Brits can afford to come spend money at your hotel or souvenir shop.

A strong dollar can be good for consumers. 

When the dollar is more valuable than other currencies, that helps consumers at home who are buying products made overseas.

A stronger dollar means American consumers could benefit from cheaper imports: French cheese and British tea might cost you less at the store.

But what this also means is that the biggest winners from a strong dollar are actually those foreign companies doing the importing, because they may see a boost in sales — and if prices don't fall by a lot, they might even get more value through those stronger dollars in return for their goods. 

German conglomerate Bayer, for instance, has said that for every 1% of dollar appreciation against the Euro, it makes an extra 260 million Euros in net sales. 

What a strong dollar means for the overall economy 

Ultimately, a valuable dollar hurts American companies that rely on overseas sales — because fewer foreigners can afford to buy their stuff — especially smaller American manufacturers that can't afford to set up operations overseas, where their dollars will go further.

The obvious irony here is that what seems at face value to be an early victory for the Trump economy may end up undermining one of his signature campaign promises: to help struggling U.S. manufacturing. 

One upside is that American companies might benefit from cheaper raw materials like steel — as long as they rely mostly on U.S. customers.