- The U.S. dollar has risen sharply this year, and the widely-watched U.S. dollar index is at a 20-year high.
- Multinationals, including Apple and Pfizer, have pointed out that a stronger dollar could affect financial results.
- The DXY rose 10% during 2022 and is likely to remain high in the coming months, experts say.
What is shaping up as an iconic year of a strong US dollar is being marked as a headache by multinationals, and it could be months before the dollar continues to fall, analysts say.
Apple, Pfizer, and other giants have told investors that financial results could be eroded by currency fluctuations this year, where the dollar hits a 20-year high against a basket of widely watched currencies.
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The reaction is centered on the dollar’s rise in relative value. The US Dollar Index recently climbed 104% in 2022, surpassing 104. The index was 103 on Friday, but it is unlikely to decline significantly over the coming months.
“In the next three to six months, 100 to 105 will be dollars. [index] “I don’t think the dollar is going to drop really sharply because other central banks aren’t as hawkish as the Federal Reserve,” Fawad Razaqzada, a market analyst at Forex.com, told Insider. He said in an interview with London.
The US Dollar Index measures the dollar’s performance against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The US dollar is up 11% against the yen this year.
Bank of America said in a note on Friday that DXY was “overbought” and was showing the beginning of a correction. “However, there are no bullish breakouts, uptrend conditions and highs patterns over the time frame, meaning you should buy the downside,” said Paul Ciana, Technical Strategist, BofA. “He said.
For U.S. companies doing business abroad, a stronger dollar can make products more expensive for holders of other currencies to purchase. In addition, the value of overseas sales decreases when converted to dollars. According to FactSet, S&P 500 companies generate 41% of sales outside the United States.
As for factors that could slow sales growth in the third quarter of the current fiscal year compared to the second quarter, Apple said, “It is a matter of the dollar’s strength at this point.” “When it comes to FX, we expect a headwind of nearly 300 basis points or a decline of around 3% in sales,” said Luca Maestri, Apple’s CFO, in an April earnings release.
Former Facebook, Meta Platforms, expects foreign currency depreciation by nearly 3% in Q2 revenue growth. Although Pfizer said the projected negative impact of currency fluctuations increased to $2 billion from the $1.1 billion reported in February, the COVID-19 vaccine maker kept its 2022 sales forecast between $98 billion and $102 billion.
“Cost pressure has reached another level and the exchange rate has moved against us,” said Andre Schulten, chief financial officer of Procter & Gamble, during the third quarter earnings call. “We now expect FX to be an after-tax headwind of $300 million in fiscal year earnings,” he said.
The Fed signaled last year that it would start a cycle of aggressive rate hikes to quell inflation. Headlines US Consumer Price Inflation It was 8.3% in April.
Expectations of a rate hike have pushed yields on US Treasuries in 2022 to a multi-year high, making it attractive for foreign investors comparing debt from other countries, such as Japan, which offer relatively low yields. Investors will increase demand for the US dollar and its value by selling foreign currencies and buying dollars to buy higher yielding US bonds. The 10-year Treasury yield rose above 3% and reached 2.8% on Friday. Japan’s 10-year yield was 0.24% on Friday.
The Fed has raised rates by 75 basis points since March and is expected to raise rates by 50 basis points. At the June 14-15 meeting. Interest rate hikes aim to lower inflation by slowing down economic activity.
A Significant Transition to Fear of America
Quant Insight’s director of analytics, Huw Roberts, told Insider that the dollar’s surge could be somewhat hampered by inflation concerns. The idea struck me once when the 10-year yield fell from 3% after the April inflation report showed the 10-year yield eased from its 41-year high of 8.5% in March.
“[If] “Treasury yields keep falling and copper keeps falling,” Roberts said. “It means the market is concerned about growth. Is this necessarily a weak dollar? It won’t necessarily be a full dollar bearish call because if the .
“I’m going to frame this because the dollar could mean the end of one-way traffic going up,” said Roberts. “Does this necessarily cause the dollar to fall? That’s much more controversial.”