The US dollar hit a 15-month low, making it easier for emerging nations such as Argentina and Mexico to cut debt, enhance economic development and attract more investment.
The dollar is down almost 13% against a basket of other major currencies since early 2022. Analysts expect the decline in the greenback to continue until the end of this year, pointing to dwindling bond yields and cooling inflation in the United States.
The drop in the value of the dollar is a major relief for Argentina, which has been battling with high debt levels and growing inflation.
A 10 percent US dollar appreciation decreases economic output in emerging market economies by 1.9 percent after one year. For more on how emerging market economies are impacted by USD appreciations, read our latest IMFBlog. #ESR https://t.co/eXyVKqOlBu pic.twitter.com/XHoSVs0vOW
— IMF (@IMFNews) July 19, 2023
The US dollar is the world’s reserve currency. Its declining value will have a ripple effect across the global economy. For Latin American countries that have borrowed heavily in dollars, the weaker greenback will make their debt payments easier to manage.
Caribbean nations stand to gain from the depreciating dollar, as many of their imports are dollar-priced raw goods. These imports will be more affordable as a result of the currency drop, stimulating regional economic expansion.
Lower interest rates in the US will also likely encourage Wall Street investors to look for higher yields in emerging markets. This could lead to an increase in capital flows to these countries, which could further boost economic growth.
The depreciation of the US dollar raises the value of other currencies. The Mexican peso, for example, is currently trading at 16.75 pesos to the US dollar, its highest level since November 2015.
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