The US price increases aren't being attributed to the strong dollar. The letter is referring to the reasons Chinese sales are weaker than predicted. The stronger dollar is one of those reasons.

But I'm still a bit confused on it. How is Foxconn being paid? In dollars or in yuan? If the dollar is strong, shouldn't the BOM and manufacturing costs decline in lockstep with the Chinese buyers' purchasing power (relative to USD)?

I imagine the BOM and manufacturing costs aren't as big as paying all of those employees at 1 Apple Park Way, their IP holding companies overseas, or all their construction costs on billion dollar campuses they're building, who are being paid in dollars.

They increase the price in US, they also increase the price in local currency ON top of that, to hedge the currency fluctuations. In the end, the oversea consumers pay much more even in terms of us dollars.

So US probably has the cheapest iPhone in the world.