How Much Stronger The U.S. Dollar Is Compared To The Rest Of The World

Often when you hear U.S. presidents and prominent politicians talking about how well the U.S. economy is doing, it's likely they'll also mention something about the strength of the dollar. But what does this actually mean? For the average U.S. consumer, this metric of economic strength is often a confusing statement, especially when their grocery bill keeps on going up and goods and services within the country seem more expensive than ever. When you think of it like this, praising the U.S. dollar for its strength kind of seems like a cop out amidst rising inflation. Unless, of course, you are using U.S. dollars to buy foreign goods.

The strength or weakness of the U.S. dollar is an economic metric used to measure its value against other major currencies in the world economy. When the dollar is strong, it essentially means that for someone traveling abroad, your U.S. dollars have more purchasing power in a foreign economy. This also makes U.S. exports more expensive to foreign customers, and U.S. imports less expensive to domestic buyers. On the other hand, however, when the dollar is weak, the opposite is true for any of the above information. That being said, let's take a look at how much stronger the U.S. dollar is compared to the rest of the world right now.

If you're looking to gauge the strength of the U.S. dollar at any given point in time, the best way to do so is to refer to the U.S. Dollar Index or USDX (ticker DXY.) This index compares the U.S. dollar to the currencies of the country's six most significant trading partners (the euro, the Japanese yen, the British pound, the Swiss franc, the Canadian dollar, and the Swedish krona.) This index was created in 1973 and has since been used as a prominent way to measure the relative strength of the U.S. dollar.

Simply put, this is how it works: if the USDX rises, the dollar is getting stronger compared to the aforementioned currencies. If the USDX falls, however, the opposite is true. The value of the USDX was set at 100 in 1973, so if the USDX at any given point in time is higher than this number, then the value of the dollar is stronger than it was in 1973. Alternatively, if its value is lower than 100, then of course the opposite is the case. But overall, the USDX is a good way that is used by many to capture the dollars given strength at any point in time.

Despite some economic volatility that occurred in 2024, the dollar defied all odds and managed to rise by 7%. J.P. Morgan published a report of 2025 projections for the dollar, and with the Trump Administration expected to enact policies such as raising tariffs and increasing domestic production, the firm believes the dollar's strength will continue to persist in the short-term during this year. As of January 14th, 2025, according to the U.S. Dollar Index via Yahoo Finance, it is sitting at a value of around 109. Based on the information we previously discussed, this means that the dollar is indeed showing signs of strength, but how at its current value does it compare to other prominent currencies in the world? Let's take a look.

China, which has the second-largest economy in the world by GDP after the U.S., is currently experiencing a domestic debt crisis. This could inevitably lead the country's currency, the yuan, to inevitably collapse in value compared to the U.S. dollar. The Euro, on the other hand, is currently slightly stronger than the dollar, with the exchange rate as of January 14th, 2025 signifying that 1 euro is equal to around 1.03 USD. However, historically speaking, the exchange rate has typically been much higher over the last 20 or so years, signifying a change in trend for the strength of the U.S. dollar versus the euro.

Generally speaking, the strength or weakness of the U.S. dollar can have a varying impact globally. On one hand, if the dollar is comparatively stronger than the rest of the world's currencies, and you plan to go on a vacation abroad, it would be in your favor. For example, when the Japanese yen fell to its weakest level compared to the U.S. dollar since 1990 in 2024, many U.S. citizens had the opportunity to take advantage of this. This is because a vacation to Japan during this time would have been historically cheap for U.S. citizens, making the yen's decline in value versus the U.S. dollar an opportunity for people looking to travel. However, the opposite would be true for Japanese citizens looking to travel abroad.

On the other hand, a weak U.S. dollar can make American goods and services more competitive abroad, as it makes it more affordable for foreigners to buy U.S. products. This would be beneficial for many American businesses. A weak dollar is also good for global liquidity (the amount of money available in the global financial system.) Seeing as the U.S. dollar is the world's reserve currency, the majority of global debt is denominated in dollars. This means when the dollar is weak, it becomes cheaper for foreign countries to pay back their debts, and also boosts global trade and capital flows to emerging markets.