← Money Rehab with Nicole Lapin
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Nicole Lapin
So I just went to the grocery store and I actually flinched at the cost of eggs and I don't even really eat eggs. That's how bad it is. Everything feels more expensive. And so I'm hearing from a lot of money rehabbers right now that their credit cards are getting a lot of exercise right now. But the last thing I want for any of you is to go into credit card debt. Enter Chime Credit Builder Card. This is a secured credit card with no annual fees. You can build credit with money you set aside and avoid interest or expensive debt. Plus you can get access to MyPay and get up to $500 of payday with no mandatory fees. Start building credit with your everyday purchases and regular on time payments with no annual fees, interest or credit check@chime.com mnn and then when you go to chime.com mnn as in money News Network, you'll start thinking about all the doors that will open once you start building your credit. Like lower rates on loans. Who doesn't want that? Turn your everyday purchases into steps toward your financial goals with Chime Secure Credit Card. Get started today@chime.commnn that's chime.com Chime feels like progress. The Chime Credit Builder Visa credit card is issued by the Bancorp Bank NA or Stride bank na. Spot ME eligibility requirements and overdraft limits apply. Out of network ATM withdrawal and OTC advance fees may apply. Late payment may negatively impact your credit score. Results may vary. MyPay eligibility requirements apply. Credit limits range from 200 to $500. Go to Chime.com disclosures for details. So I have written, count them five books now. But each time I'm in the writing process I stay at an Airbnb. I love to stay at an Airbnb. When I was actually first launching this show, I was at an Airbnb in Arizona. It was so peaceful. It was stunning. I could be productive and comfortable. The Airbnb was also surrounded by a ton of javelinas. If you know Arizona, you know they're like wild pig creatures. But honestly, I love them too. Being away for work, for fun, or both is a perfect opportunity to host your space on Airbnb. And if you think that hosting is overwhelming, I have a solve for you. With Airbnb's co host network, it's easier than ever ever before to host. It's also a great way to earn some extra cash, which I know we all love. Now you can hire a quality local co host to take care of your home and your guests. They can do everything from creating your listing to managing reservations, to messaging guests and even providing on site support. So if you've got a secondary property or an extended trip coming up and you need a little help hosting while you're away, you can hire eight co hosts to do the work for you. Find a co host@airbnb.com host foreign I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand it's time for some money rehab. Well, the value of the US Dollar has been slipping and this story is up against a bunch of other doom and gloom headlines. So it could have gotten lost, but it's really, really important. Because while it might sound like something that only economists or bond traders need to worry, value of the US Dollar is one of those big macroeconomic forces that trickles right down into our wallets. And while this is breaking news, you probably already noticed it. So today I'm going to do a deep dive on what the heck is going on with the dollar, why it matters, and how it affects you. And as you've already guessed, it's way more than just currency exchange rates. The dollar has fallen about 8% this year and is now trading at a three year low. This drop is showing up in the dollar index, which is a metric that tracks the doll of other major foreign currencies like the euro, the yen and the British pound. That's a big move in just a short period of time. So what changed? Well, a lot of recent movement traces back to tariffs. As we know, President Trump announced sweeping tariffs on imports from nearly every single major trading partner, and that has spooked investors in a big way. But the tariffs were actually supposed to help the U.S. economy. The thinking was these tariffs would make foreign goods more expensive expensive, which might slow demand for those imports. While the stock market wasn't into tariffs, slowing demand for those imports could, in theory strengthen the dollar. But instead, the opposite happened. The scale of the tariffs and the uncertainty about who would be hit and how hard just created turbulence. Investors started selling off US Assets and then pulling money out of the country, which weakened the demand for the dollar. So how does a Uyghur dollar affect us? Well, the side effect that normally gets brought up first is more expensive international vacation. So if you're planning a honeymoon in Italy, if so, I am jealous. Even though you will have to pay more for that aperol spritz. If you're traveling abroad, the dollar simply won't go as far. But there are other side effects too. Imported Goods get more expensive. Whether it's French wine or Chinese electronics, prices on foreign goods rise as the dollar loses strength, even before tariffs kick in. We're already seeing this at checkout. And then as the dollar weakens, foreign investors might pull their money out of the US market, which could lead to less demand for stocks and bonds and then more volatility. So fun. The happy story, though, is that US Exports become cheaper abroad. So if you are a business owner that sells overseas, that could be good. Foreign buyers get more bang for their buck, which could boost your sales. But for those of us back home, a weaker dollar also means mounting inflation pressure. If the dollar keeps weakening and exports stay pricey, that feeds into inflation. You've probably heard this described as imported inflation. I want to double click on that last point, because it's easy to confuse a weakening dollar with inflation. But they're not the exact same thing, even though they do go hand in hand. The value of the dollar is really contextual. When you think about the value of the dollar, you're talking about how it stacks up against other currencies in the global market. So think US$1 getting you few euro or yen. Inflation, on the other hand, measures how much more expensive goods and services are within the US Economy itself. When the dollar weakens internationally, it can also contribute to inflation domestically, because imported goods then become more expensive. But inflation can also rise for unrelated reasons to the dollar, like supply chain disruptions or rising wages or, I don't know, a pandemic. So net net a falling dollar affects what your money is worth abroad, while inflation affects what your money can buy at home. But to really unpack what would need to happen in order for the value of the dollar to rise, we need to talk about how the dollar gets valued. In the first place, the US Dollar is a fiat currency, which means that it's not backed by gold or any physical commodity. Its value comes from the fact that the US Government says it has value and the global economy agrees. But the market is what really sets the price. The dollar's value is driven by supply and demand. Just like anything else in a capitalist economy, there are five big levers that affect the supply and the demand of the dollar. First, a hot topic right now, interest rates. When U.S. interest rates are high, foreign investors want to bring their money back to the United States to get those better returns. That increases demand for the dollar, and it pushes up the dollar's value. When rates are low, though, there is less demand and a weaker dollar. The second thing is inflation. High inflation makes the dollar less valuable at home and abroad because it erodes purchasing power. Number three, economic performance. A stronger US economy with solid growth and low unemployment tends to attract foreign capital, which then boosts the dollar. Number four, market sentiment. This one is more psychological, but it's just as important. If investors think think the US economy is headed for trouble, they're probably going to pull their money out. So less demand for the dollar means lower value. And number five, trade policy and geopolitics. Tariffs, sanctions, other government policies can spook or attract, depending on what they are, investors. Uncertainty though, is a killer for the US dollar. So you do the math. Between tariffs, inflation, interest rates, it is a perfect storm for the dollar. But even though the dollar is at a three year low, this isn't the first time the dollar has taken a hit. In the early 2000s, after the DOT com bubble burst and the Fed slashed interest rates, the dollar weakened significantly. And then during the 08 financial crisis, the dollar initially dropped as global markets panicked, but then recovered as investors flocked to the safety of US Treasuries. And most recently during the pandemic, the dollar fell sharply as uncertainty soared, only to rebound when the US rolled out a juicy stimulus package and vaccines. What's happening right now though, is a bit different. The dollar's weakness is not coming from traditional financial crises, but from policy volatility and trade related fear. Economists are now seeing higher odds of a recession due to this trade war and tariff impact. If the economy slows down, the Fed might cut interest rates to cushion the blow, but that would only further weaken the dollar, creating this feedback loop of inflation and volatility. And if the White House meddles with Fed policy, that is another big red flag. I'm going to be talking about that more tomorrow. But markets depend on trust in US institutions. If investors start doubting that the Fed can act independently, the dollar could take another nosedive. As Brad Seter, a former treasury official, put it, the world might just be asking whether putting more money into the US is worth the risk. And when confidence wavers, that's when currencies take a hit. For today's tip, you can take straight to the bank. If you're planning a big overseas purchase like luxury goods or a destination wedding, or even importing inventory for your small business, consider opening a multi currency account with a fintech bank or a brokerage. It lets you convert US Dollars when the exchange rate is favorable and hold foreign currency until you're ready to spend it. That way you're not at the mercy of a dollar on the exact day of your transaction. So a little currency strategy can help you save hundreds or even thousands of dollars over time. Money Rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoy. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions moneyrehaboneynewsnetwork.com to potentially have your questions answered on the show or even have a one on one intervention with me. And follow us on Instagram @moneynews and tiktokoneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.