Causes and Impacts of Rising Dollar Exchange Rate

Key Causes of Dollar’s Strengthening

1. Hawkish Policies by the US Federal Reserve (The Fed)
   The Fed has consistently raised interest rates to tackle inflation, making US assets more attractive for global investors. As a result, the dollar strengthens against other currencies, including the rupiah Invesnesia.com.
2. Global Economic Uncertainty
   Economic instability, such as rising commodity prices and geopolitical conflicts, encourages investors to seek safer assets like the US dollar Kompas Money.
3. High Demand for US Dollars
   Indonesia’s import needs, especially for energy and food products, have driven up demand for dollars. Additionally, foreign investors repatriating profits have increased pressure on the rupiah Kompas Money.

Impacts of Rising Dollar Exchange Rates

1. Increased Import Costs
   A stronger dollar makes imports more expensive, leading to rising prices of goods and commodities like oil and food.
2. Inflation Risks
   Higher costs of imports can lead to inflation, putting pressure on household expenses.
3. Burden on Businesses
   Companies relying on imported materials face higher production costs, which could reduce profit margins or force price hikes.
4. Investment Outflow
   A rising dollar encourages foreign investors to withdraw their funds from local markets, weakening the local economy Invesnesia.com.

Possible Solutions

1. Strengthening Economic Policies
   Governments and central banks can intervene to stabilize the exchange rate through measures like adjusting interest rates or improving trade balances.
2. Promoting Exports
   Enhancing export performance can help increase foreign exchange reserves and balance currency demands.
3. Diversifying Investments
   Reducing dependency on the dollar by encouraging investments in alternative currencies or assets can provide more economic stability Kompas Money.

Conclusion

The consistent rise in the dollar exchange rate is primarily caused by the Fed’s policy stance and global economic challenges. Its effects, including inflation and higher import costs, require strategic policies to safeguard the economy. Strengthening exports and maintaining