, executives say the U.S. currency’s rise to levels not seen in nearly 20 years is cutting into their profit. Some dismal earnings could lie ahead for firms that sell U.S. goods overseas. But weigh up the pros and cons, and the Teflon dollar is still in America’s interest.
The soaring greenback that results is great for U.S. holidaymakers abroad, but a pain in the neck for American companies with foreign cash flows. Around 30% of the revenue of S&P 500 Index firms comes from outside of the United States according to Morgan Stanley. That’s equivalent to around $4 trillion, based on Refinitiv estimates for this year. Earnings estimates tend to fall as the dollar works its way upwards.S&P 500 downward EPS estimate revisions as a share of all revisions.
That makes the strong dollar mostly a stock-market problem for now. Federal Reserve chief Jay Powell, for example, is unfazed by falling equity markets. President Joe Biden has remained quiet on the currency question, while Treasury Secretary Janet Yellen says the rising dollar in early 2023, suggesting a belief inflation will be under control by then. When that happens, investors are likely to regain their taste for risk and buy back into equities. Companies now singing the strong-dollar blues may change their tune before long.The U.S dollar has strengthened 15% over the past year against a basket of trading-partner currencies, as of July 29. The U.S. dollar index tracks the currency against the euro, yen, British pound, Canadian dollar, Swedish crown and Swiss franc.