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Will a Strengthening US Dollar Hinder US Multinationals in 2019?

Feb 13, 2019

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  • US multinational companies who convert foreign profits into domestic currency may be bogged down this year by a resilient US Dollar that has moved against the general Wall Street consensus for a weaker greenback in 2019, according to a report by the Wall Street Journal.  
     
  • The Bloomberg Dollar Spot Index posted an 8-session rally from January 30th, 2019 to February 11th, 2019, the longest streak of consecutive gains for the index in 3 years, to wipe out its declines for 2019 and move into positive territory.
     
  • As can be seen in the chart below, the Bloomberg Dollar Spot Index is up 6.18% in the last year to 1,196.93. Year-to-date, the Bloomberg Dollar Spot Index is up 0.10%.

 

Source: Bloomberg
 

  • As the US Dollar continues to strengthen, US multinational companies who convert their foreign profits into domestic currency will see mounting losses due to currency translations. According to Bank of America Merrill Lynch, US companies are on track to take their largest currency-related hit to sales since 2017.  
     
  • Analysts are also noting that the US Dollar’s strength comes at an unwelcome time for the US economy. A stronger US Dollar effectively heightens investor concerns over slowing global growth, trade war effects, and the potential impact of the US Federal Reserve’s monetary tightening policy in the last 2 years.
     
  • A more dovish tone of late by the US Federal Reserve, however, may help to cool appreciation of the US Dollar. At its latest meeting on January 30th, the US Federal Reserve forecasted just 2 interest rate hikes in 2019 while Chairman Jerome Powell said the case for further interest rate hikes has weakened. The more dovish tone did little to hinder the US Dollar rally, however, as the Bloomberg Dollar Index rallied in 8 straight trading sessions following the January 30th announcement, as detailed above.

 

 

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Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS