U.S. dollar nears 20-year high and here’s why that’s not a good thing – The Average Joe
Business Economy Tech Subscribe About Us

    U.S. dollar nears 20-year high and here’s why that’s not a good thing

    victorlei

    June 14, 2022

    Markets are setting new highs — just not where most investors want. The U.S. dollar is at its highest level in nearly 20 years as measured by the U.S Dollar Index ($DXY) — a benchmark for the U.S. dollar compared to a basket of global currencies.

    Another thing for investors to worry about…

    The U.S dollar is soaring as the Fed aggressively raises interest rates — making it more attractive for global bond investors. The dollar is also seen as a safe haven asset — attracting investors during uncertain market conditions.

    A high U.S. dollar can be good or bad depending on which side of the coin you’re on…

    • Good for consumers traveling outside the U.S. or buying international goods.
    • Bad for companies that rely on international sales, as a higher USD makes U.S. goods more expensive.

    Per Bloomberg, investors typically brush off foreign exchange impacts — but this time, the impacts have a noticeable effect. Thirty-five percent of U.S. companies have enough international exposure that a higher dollar will cause a material impact.

    Nothing like home

    S&P 500 companies with greater domestic exposure have done better in 2022.

    1/ The S&P 500 Foreign Revenue Exposure Index — an index of companies with a greater portion of international sales — is down 24% in 2022.

    2/ The S&P 500 Focused U.S. Revenue Exposure Index — an index of companies with a greater portion of domestic sales — is down 12% in 2022.

    • The five largest companies in the index are DISH Network, Diamondback Energy, Intuit, Coterra Energy and D.R. Horton, Inc.

    Several companies have already reported lower earnings due to a strong USD. Microsoft — which makes more than half its sales internationally — forecasted a $460M hit to sales this quarter due to foreign exchange. Salesforce expects a $600M hit on its revenue — double the previous estimate.

    Investors: How high can the dollar go?

    Recently, a Bank of America Technical Strategist stated the $DXY could trend to 110 this summer, ~5% higher (Insider). While this might not seem much, it’s a sizeable move in the foreign exchange market.

    Here’s a shortlist of companies expecting negative impacts from a higher USD: Biogen, Costco, Hewlett Packard, Johnson & Johnson, Meta, McDonald’s, Mastercard and Procter & Gamble.

    Trending Posts