Strong US Dollar Hurts Corporations

The asset with the greatest prowess of late has been the U.S. dollar, and if its rally continues, it threatens to eat into the earnings of multinational companies.

The greenback’s recent gains have lifted the dollar index .DXY – a measure of the dollar’s value relative to six currencies – for 10 consecutive weeks.

That marks the dollar’s longest rally since the index was created in 1973 – and could pose significant headwinds to dollar-sensitive sectors of the market, particularly companies that respond to commodity prices affected by the greenback, and multinationals that do much of their business overseas.

 
“For the past few years, the U.S. dollar has been trading in a relatively quiet trading range. This summer, something changed. We are now seeing a new uptrend develop,” said Adam Sarhan, founder and CEO of Sarhan Capital in New York.

Analysts have already pointed fingers at the dollar for the decline in prices of commodities like precious metals, corn and oil in recent weeks.

U.S. multinationals with large streams of revenue from overseas also stand to lose.

“If you’re a consumer products company that does a lot of business overseas, it’s not going to help you. If you’re a large tech company and you do a lot of business overseas, that’s not going to help you,” said Larry Glazer, managing partner at Mayflower Advisors in Boston.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza