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Why dollar rate is increasing against Indian rupee?

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Dollar rate is increasing, usd vs inr, why dollar rate is extremely strong, rising dollar value against Indian rupee

The value of US dollar has reached the highest level against numerous major world economies. Recently, dollar has touched the highest point where $1 is equal to 81.72 INR. A strong dollar value can make the products imported to America much cheaper and the abroad trips for American travel less expensive. 

Major companies operating in foreign countries have recently stated that the increased dollar value have affected their profits because foreign sales loses value when it is converted back to the dollar. Before proceeding further, let us take a look at the increasing dollar value against Indian rupee in the past few decades.

YearDollar rate
2022 September81.43
Dollar rates from 1925 to 2022

Reasons why dollar rate is extremely strong

The point to be noted is why the dollar is increasing. One of the reasons is the Federal Reserve has increased the interest rates faster than any other major country of the world.

The central bank has also begin to enhance the interest rates in March after keeping them at around 0 for the entire duration of pandemic. Higher interest rates makes dollar value extremely strong and good source of investment due to bigger returns.

Next reason is the invasion by Russia of Ukraine has strained European economy and resulted in increased prices of natural gas, making the US economy much healthy.

The world economy has been talking about the recession but there is no impact observed on the US economy. Rather the country have been performing well.

As the growth outlook for the global economy worsens, the investors start putting their money into the safer assets like treasury bonds of US. This results in increased currency value. 

Rising dollar value
Rising dollar value

How the increased dollar value helps Americans?

Increased dollar value reduces inflation by making imports cheaper. The foreign sellers are likely to decrease the prices when the dollar rate increases translating to lower prices for the imported products by American people.

The higher dollar value is also good for the American travellers. The American tourists have already find it easy to plan for the Europe vacation and purchase luxurious goods. The investors have already planned to buy property in the European countries.

Dollar rate is increasing

How the increased dollar rate is bad for Indian economy?

The first reason is the costly imports to the country. Let us consider this with an example of a product exported worth $100 including taxes and duties. If the same product would have been imported in July 2022, the buyer would have to pay Rs 7987. The same product would have been Rs 8132 in September 2022.  

The Indian companies operating in the US will probably on more profits after converting back to the Indian currency, but the cost of goods and raw material will be much higher. This will probably nil the impact of the higher profits earned. 

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Impact on other economies

Increased dollar rate can create inflation and the impact can be brutal for the developing countries. When the US interest rates are low the Global investors are likely to invest in the emerging economies. On the contrary, when the interest rates increases the investors starts taking back their  money. For more details, read the article.

Frequently asked questions

1. Should I invest in US currency?

No, let the dollar value decrease. Right now the dollar rate is at its peak point.

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