A strong currency makes U.S. exports and products more expensive for other countries. It also means that the value of overseas sales is reduced when converted back into dollars.
The rising dollar negatively influences companies that have a huge global presence as they end up trading in a weakened domestic currency. Almost half of all revenue for companies in the S&P 500comes from outside the U.S., mainly Europe and Asia.
For the first quarter of 2015, Ford said 70 percent of its global revenue decline was due to the effects of currency-exchange fluctuations. Yum Brands, in reporting third-quarter earnings, stated “foreign currency translation remains a strong headwind” and that it expected the exchange rate “to impact full-year earnings per share by about 5 percentage points.” For Q3, PVH said its bottom line was certainly getting hurt because of the weak dollar. Monsanto reported a loss for the fourth quarter, citing the strong dollar.
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That’s just a handful of companies expected to continue to demonstrate the onslaught of the strong dollar. Plus, America’s economy certainly won’t stop the greenback’s surge.
The job market is on a tear, growth is picking up, the Fed may continue to raise rates, and other countries and regions such as China and Europe are going through their own changes and weakness.
The direction of the dollar is pivotal this year. A further dramatic rise could spell trouble.