NEW YORK - A host of U.S. companies are faced with a problem they had not expected to confront this year: a rising dollar.
The dollar's strength in the latest quarter comes during a period of robust corporate profits. With well over 80% of the S&P 500 having reported first quarter results, companies are on track to have increased earnings by 7.8%, up from an expectation of 5.1% growth in April, according to LSEG IBES. Nonetheless, companies from Apple Inc and IBM to Procter & Gamble have mentioned foreign exchange as a headwind.
"Nearly all FX practitioners were expecting the dollar to be weaker this year with the anticipation of lower U.S. interest rates," said Amo Sahota, director at foreign exchange risk management firm Klarity FX in San Francisco. "Corporates were licking their lips, essentially waiting for that to play through." Not all S&P 500 companies are equally affected by the dollar's swings.
"Towards the end of the first quarter, we did see some complacency on the hedging front. Currency volatility fell to a multi-year low, which led to a lack of a sense of urgency," said John Doyle, head of trading and dealing at Monex USA in Washington. "However, we have seen a recent uptick in hedging over the past month and a half."
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