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you don't need a dictionary to understand.

2:02

It's time for some many rehab. The

2:13

value of the US dollar has been

2:15

slipping. And this story is up against a

2:17

bunch of other doom and gloom headlines.

2:19

So it could have gotten lost, but it's

2:21

really, really important because while it might

2:23

sound like something that only economists or bond

2:25

traders need to worry about, the value

2:28

of the US dollar is one of those

2:30

big macro economic forces that trickles right

2:32

down into our wallets. And while this is

2:34

breaking news, you probably already noticed it.

2:36

So today I'm going to do a deep

2:38

dive on what the heck is going

2:40

on with the dollar, why it matters, and

2:42

how it affects you. And as you've

2:44

already guessed, it's way more than just

2:46

currency exchange rates. The

2:49

dollar has fallen about 8 % this

2:51

year and is now trading at a

2:53

three -year low. This drop is

2:55

showing up in the dollar index, which is a

2:57

metric that tracks the dollar against a basket

2:59

of other major foreign currencies like the euro, the

3:01

yen, and the British pound. That's

3:03

a big move in just a

3:06

short period of time. So what

3:08

changed? Well, a lot of recent

3:10

movement traces back to tariffs. As

3:12

we know, President Trump announced sweeping

3:14

tariffs on imports from nearly every

3:16

single major trading partner, and that

3:19

has spooked investors in a big

3:21

way. But the tariffs were actually

3:23

supposed to help the U .S.

3:25

economy. The thinking was these tariffs

3:27

would make foreign goods more expensive,

3:29

which might slow demand for

3:31

those imports. While the stock market

3:33

wasn't into tariffs, slowing demand for

3:35

those imports could in theory strengthen

3:37

the dollar. But instead, The

3:39

opposite happened. The scale of the

3:42

tariffs and the uncertainty about who

3:44

would be hit and how hard

3:46

just created turbulence. Investors started

3:48

selling off U .S. assets and then

3:50

pulling money out of the country, which weakened

3:52

the demand for the dollar. So

3:54

how does a weaker dollar affect us? Well,

3:57

the side effect that normally gets brought up

3:59

first is more expensive vacation. So if

4:01

you're planning a hunting moon in Italy, if

4:04

so, I am jealous, even though you

4:06

will have to pay more for

4:08

that apparel spritz. If you're traveling abroad,

4:10

the dollar simply won't go as

4:12

far. But there are other side effects

4:14

too. Imported goods get more expensive,

4:16

whether it's French wine or Chinese electronics,

4:18

prices on foreign goods rise as

4:20

the dollar loses strength. Even before tariffs

4:22

kick in, we're already seeing this

4:24

at checkout. And then as the

4:27

dollar weekends foreign investors might pull their money

4:29

out of the U .S. market, which could

4:31

lead to less demand for stocks and

4:33

bonds, and then more volatility. So

4:35

fun. The happy story, though,

4:37

is that U .S. exports become cheaper

4:39

abroad. So if you're a business

4:41

owner that sells overseas, that

4:44

could be good. Foreign buyers get more

4:46

bang for their buck, which could boost

4:48

your sales. But for those of us

4:50

back home, a weaker dollar also means

4:52

mounting inflation pressure. If the

4:54

dollar keeps weakening and exports stay pricey,

4:56

that feeds into inflation. You've probably

4:58

heard this described as imported inflation. I

5:00

want to double click on that

5:02

last point because it's easy to confuse

5:05

a weakening dollar with inflation, but

5:07

they're not the exact same thing, even though they

5:09

do go hand in hand. The value

5:11

of the dollar is really contextual. When

5:13

you think about the value of the

5:15

dollar, you're talking about how it stacks

5:17

up against other currencies in the global

5:19

market. So think one US dollar getting

5:21

you few euro or yen. Inflation,

5:23

on the other hand, measures how

5:25

much more expensive goods and services

5:27

are within the U .S. economy

5:30

itself. When the dollar weakens

5:32

internationally, it can also contribute to

5:34

inflation domestically because imported goods then

5:36

become more expensive. But inflation can

5:38

also rise for unrelated reasons to

5:40

the dollar, like supply chain disruptions

5:42

or rising wages or, I don't

5:44

know, a pandemic. So net

5:46

net, a falling dollar affects what your

5:48

money is worth abroad while inflation affects

5:50

what your money can buy at home. But

5:53

to really unpack what would need to happen in order

5:55

for the value of the dollar to rise, we need

5:57

to talk about how the dollar gets valued in the

5:59

first place. The US dollar is

6:01

a fiat currency, which means that it's not

6:03

backed by gold or any physical commodity. Its

6:06

value comes from the fact that

6:08

the US government says it has value

6:10

and the global economy agrees. But the

6:13

market is what really sets the price. The

6:15

dollar's value is driven by supply and

6:17

demand, just like anything else in a

6:20

capitalist economy. There are five big levers

6:22

that affect the supply and the demand

6:24

of the dollar. First, a hot topic

6:26

right now, interest rates. When

6:28

US interest rates are high, foreign

6:30

investors want to bring their money back

6:32

to the United States to get

6:34

those better returns. That increases demand for

6:36

the dollar and it pushes up

6:38

the dollar's value. When rates are low,

6:40

though, there is less demand and

6:42

a weaker dollar. The second thing

6:44

is inflation. High inflation makes the

6:46

dollar less valuable at home and

6:48

abroad because it erodes purchasing power.

6:50

Number three, economic performance. A stronger

6:52

US economy with solid growth and

6:54

low unemployment tends to attract foreign

6:56

capital, which then boosts the dollar.

6:58

Number four, market sentiment. This

7:00

one is more psychological, but it's

7:03

just as important. If investors think the

7:05

US economy is headed for trouble,

7:07

they're probably going to pull their money

7:09

out. So less demand for the

7:11

dollar means lower value. And

7:13

number five, trade policy

7:15

and geopolitics. Tariffs, sanctions, other

7:17

government policies can spook

7:19

or attract, depending on what

7:22

they are, investors. Uncertainty,

7:24

though, is a killer for the

7:26

US dollar. So you do the

7:28

math between tariffs, inflation, interest rates.

7:30

It is a perfect storm for

7:32

the dollar. But even

7:34

though the dollar is at a three -year

7:37

low, this isn't the first time the dollar

7:39

has taken a hit. In the early 2000s,

7:41

after the dot -com bubble burst and the Fed

7:43

slashed interest rates, the dollar weakened significantly. And

7:46

then during the 08 financial crisis,

7:48

the dollar initially dropped as global

7:50

markets panicked, but then recovered as investors

7:52

flocked to the safety of U .S.

7:54

treasuries. And most recently, during the

7:56

pandemic, the dollar fell sharply as uncertainty

7:58

soared, only to rebound when the U

8:01

.S. rolled out a juicy stimulus package

8:03

and vax What's

8:06

happening right now, though, is a

8:08

bit different. The dollar's weakness is

8:10

not coming from traditional financial crises,

8:13

but from policy volatility and trade -related

8:15

fear. Economists are now seeing higher

8:17

odds of a recession due to

8:19

this trade war and tariff impact.

8:22

If the economy slows down, the Fed

8:24

might cut interest rates to cushion

8:26

the blow. But that would only further

8:28

weaken the dollar, creating this feedback

8:30

loop of inflation and volatility. And

8:33

if the White House meddles with Fed

8:35

policy, that is another big red

8:37

flag. I'm going to be talking

8:40

about that more tomorrow. But markets

8:42

depend on trust in U .S.

8:44

institutions. If investors start doubting

8:46

that the Fed can act

8:48

independently, the dollar could take

8:50

another nose dive. As Brad

8:52

Setster, a former Treasury official put

8:54

it, the world might just be asking

8:56

whether putting more money into the

8:58

U .S. is worth the risk. And

9:00

when confidence waivers, that's when currencies take

9:02

a hit. For today's tip, you

9:04

can take straight to the bank. If

9:06

you're planning a big overseas purchase

9:08

like luxury goods or destination wedding or

9:10

even importing inventory for your small

9:12

business, consider opening a multi currency account

9:14

with a fintech bank or a

9:16

brokerage. It lets you convert US dollars

9:18

when the exchange rate is favorable

9:21

and hold foreign currency until you're ready to

9:23

spend it. That way you're not at

9:25

the mercy of a dollar on the

9:27

exact day of your transaction. So a

9:29

little currency strategy can help you save

9:31

hundreds or even thousands of dollars over

9:35

time. Money

9:40

Rehab is a production of Money

9:42

News Network. I'm your host, Nicole

9:44

Lapin. Money Rehab's executive producer is

9:46

Morgan Lavoie. Our researcher is Emily

9:48

Holmes. Do you need some money

9:50

rehab? And let's be honest, we

9:52

all do. So email us your money

9:54

questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions

9:57

answered on the show or even have

9:59

a one -on -one intervention with me.

10:01

And follow us on Instagram

10:03

at moneynews and TikTok at

10:05

moneynewsnetwork for exclusive video content.

10:07

And lastly, thank you. Seriously,

10:10

thank you. Thank you for

10:12

listening and for investing in yourself.

10:14

which is the most important investment you

10:16

can make.