A host of U.S. companies are faced with a problem they had not expected to confront this year: a rising dollar.
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 gains are being fueled by U.S. economic strength, which is eroding expectations for how deeply the Fed will be able to cut rates this year. Investors are pricing in around 50 basis points of rate cuts for 2024, compared to more than 150 basis points forecast at the beginning of the year, futures markets show.
Not all S&P 500 companies are equally affected by the dollar’s swings. The information technology, materials and communication services sectors top the list with the most international revenue exposure, garnering as much as 57%, 52% and 48% of their total revenue respectively from abroad, data from FactSet showed.
Some firms that advise companies on managing FX risk noted a rise in hedging activity in recent weeks, though quieter currency markets have made hedging a less urgent issue for some companies even as the dollar has risen. In March, Deutsche Bank’s index of currency volatility fell to its lowest level since September 2021.
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