NEW YORK, May 10 (Reuters) – A host of U.S. companies are faced with a problem they had not expected to confront this year: a rising dollar.
Many market participants believed the dollar would fall on the back of interest rate cuts that both investors and the Federal Reserve had penciled in for 2024. Those cuts are yet to come, and the U.S. dollar index (.DXY), opens new tab, which measures the greenback’s strength against a basket of currencies, is up 4% in 2024 and has climbed about 16% in the last three years.
While those gains reflect the relative strength of the U.S. economy, a rising dollar can be a problem for some companies. A strong U.S. currency makes it more expensive for multinational companies to convert foreign profits into dollars, while also hurting the competitiveness of exporters’ products. Companies guarding against dollar strength must also devote resources to hedging strategies that offset the effects of the rising currency on their bottom lines.
All told, every 10% year over year rise in the dollar shaves some 3% from S&P 500 earnings, according to estimates from BofA Global Research.
The dollar’s strength in the latest quarter comes during a period of robust corporate profits. With well over 80% of the S&P 500 having reported first quarter results, companies are on track to have increased earnings by 7.8%, up from an expectation of 5.1% growth in April, according to LSEG IBES. Nonetheless, companies from Apple Inc (AAPL.O), opens new tab and IBM (IBM.N), opens new tab to Procter & Gamble(PG.N), opens new tab have mentioned foreign exchange as a headwind.
Source: CNBC
