The dollar's surge to multi-year highs against a range of major currencies in recent weeks is good news for inflation, as it makes our imports cheaper in dollars. And it's good news for Americans traveling overseas, as our dollars are now worth more foreign currency.
But it's bad news for U.S. multinational companies. That's because their exports are now more expensive in foreign currency terms, and revenue they earn in foreign currencies is now worth less when converted to dollars.
The impact is particularly harsh because many companies already are suffering from tepid global sales, Steven Winoker, an analyst at Sanford Bernstein, told
The Wall Street Journal.
"If this were affecting 7 percent or 9 percent growth, we would not be so concerned," he said. "But with most companies at low/mid-single-digit underlying growth rates, this headwind becomes material."
He estimates the dollar's strength will cut revenue growth for industrial and electrical equipment companies by 2.6 percentage points or more this year.
Johnson & Johnson reported Tuesday that the rising dollar took 4.5 percentage points off its revenues for the fourth quarter, leading them to dip 0.6 percent for the period.
Many experts expect the dollar will keep climbing, especially against the euro. That currency hit an 11-year low of $1.1541 Wednesday amid expectations the European Central Bank would launch a new round of quantitative easing Thursday.
"Parity is in the future for the euro," Craig Johnson, senior technical research strategist at Piper Jaffray, told
CNBC and Yahoo Finance's Talking Numbers. Parity would mean the euro trades at $1.
"It's in everybody's best interest to see that currency [the euro] cheaper, so they can improve their exports. And it's ultimately positive for the entire globe," he said.
"Since about 2003, we've been making a big distributional top" for the euro, Johnson explained. "We broke through key support at about $1.20. The next real support comes in around basically $1.05 to $1.10."
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