Dollar exchange rate with major currencies and crude oil prices today, 22 July

Concerns continue to mount that major economies could slip into recession with consumers’ finances hit by ever increasing inflation. Combined with a China’s economy hitting a slump due to its strict covid policy to tackle outbreaks the price of crude oil has dropped.

The prospect of a global economic slowdown on top of the US Federal Reserve moving aggressively to tame inflation by raising interest rates has helped the US dollar to surge. This is a mixed bag, while it makes imports cheaper and could push down inflation, it makes exports more expensive and increases the trade deficit.

ECB raises interest rates for first time in eleven years

June inflation numbers for the eurozone were up from the month before, hitting 8.6 percent year-over-year. With rising prices approaching double-digits the ECB raised rates for the first time since 2011. The central bank followed through on predictions that the hike would be larger than expected after the June inflation report was released, raising rates by half of a percentage point.

Those predictions led to a rally in the euro reaching a two-week high against the dollar earlier in the week after being weakened to parity for the first time in twenty years. However, the mood was dampened when a preliminary purchasing managers’ survey for France and Germany reported activity shrinking, both falling below the 50 mark.

Dollar surges as global investors seek safety

The US Federal Reserve started moving to bring inflation under control on the other side of the Atlantic earlier this year. The winding down of the covid-19 stimulus started the dollar climbing, but recession worries and ever more aggressive rate hikes by the central bank have sent the greenback surging against other major currencies as global investors seek the safety of the US market.

The Federal Reserve is due to meet next week to determine how much rates need to rise to tamp down the 9.1 percent year-on-year inflation reported in June.

Here’s a look at the gains the US dollar has made against other major global currencies over the past year...

Who is gaining from these market conditions?

For those in the US hoping to purchase luxury goods from other countries, a strong dollar will make these products cheaper. For instance, those who may want to import a luxury car from Europe, are paying nearly the same as European consumers as the two currencies are hovering around the same value.

The same applies to US businesses who may be paying less for imports. This could in the long-run help to decrease inflation as firms see costs decrease which could allow them to lower the prices of their goods. However, the inverse is true for exports which become more expensive to send abroad.

Economic slowdowns driving slump in price of crude oil

Crude oil prices have been dropping over the past month down close to 10 percent on concerns of economic slowdown in China from covid-19 outbreaks and recession in other major economies. Both Brent and WTI have dipped below the $100 per barrel mark. But there are growing concerns that supply will remain tight and could lead to price increases in the future. As the Russian invasion of Ukraine continues, there are fears of energy shortages come winter.

Here is where the prices stood at the end of trading on Thursday...