Why a surging U.S. dollar is about to become a problem for stock-market bulls

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A fast climb by the dollar may start serving as a 'headwind' for future stock-market gains, analysts warn.

Analysts are ringing alarm bells over a surge by the U.S. dollar, warning it may be set to serve as another “headwind” for U.S. stocks as they struggle through a losing September.

“Since early August, the USD has climbed above its average [second-quarter] level. That means that for corporates, the USD switched back from tailwind to headwind…and an increasing one” as investors close out the third quarter this week, said Andrew Greenebaum of Jefferies, in a Saturday note. A rapidly strengthening dollar is often seen as a problem for big, U.S. multinationals. A stronger dollar makes their goods more expensive to overseas buyers. And income earned overseas will be less valuable on their income statements.

The U.S. dollar went on a tear in 2022 as Treasury yields surged in response to the Federal Reserve’s aggressive series of interest-rate hikes. The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, hit a 20-year high last October, but then retreated sharply.

 

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