Tags: dollar | corporate | earnings | euro

WSJ: Dollar's Upward Surge Torpedoes US Corporate Earnings

By    |   Tuesday, 24 March 2015 07:40 AM

The rocketing dollar represents a boon for American consumers, but no so much for our multinational companies.
 
The greenback has soared to multi-year highs against a range of currencies in recent weeks, hitting a 12-year peak against the euro and a seven-year zenith against the yen earlier this month.
 
The strong dollar helps Americans who buy imports by making those imports cheaper in dollar terms. And it helps American tourists by allowing their dollars to go further overseas.
 
But the greenback's ascent hurts U.S. multinational companies by making their exports more expensive in foreign currency terms and by making their revenue earned overseas worth less in dollar terms.
 
Many major companies say they are suffering as a result.  
 
"This is the most significant fiscal-year currency impact we have ever incurred," Jon Moeller, chief financial officer of Procter & Gamble, told investors in January, The Wall Street Journal reports. P&G expects the dollar's surge to slash its profit by 12 percent for the fiscal year ending in June.
 
And many experts anticipate the dollar will keep climbing.
 
Goldman Sachs predicts the euro will slide 12 percent against the dollar over the next year. "That's an enormous headwind for companies that are selling internationally," David Kostin, Goldman's chief U.S. equity strategist, tells The Journal.
 
"What is remarkable is the speed with which the dollar has accelerated, and that speed brings with it some complications," Anwiti Bahuguna, senior portfolio manager on Columbia Management's global asset allocation team, tells the newspaper. "The dollar strength is moving at a much, much faster pace than you've seen in history."
 
Not everyone sees the ascending dollar as a bad thing. The greenback's huge rally represents a "success story for America," former Pimco chief economist Paul McCulley tells CNBC.
 
The dollar's strength is deflationary, as it pushes down the price of our imports. As a result, the Federal Reserve can hold off raising interest rates for longer, McCulley argues. The market consensus now has the Fed moving in September.
 
"For what we do every day in the marketplace, it [the strong dollar] implies a kind and gentle monetary policy for a longer period than would be the case without it," he states.
 
And McCulley noted that stocks soared Wednesday (1.2 percent for the S&P 500) after the Fed's policy statement led economists to shift their rate-hike forecast to September from June or July.

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The rocketing dollar represents a boon for American consumers, but no so much for our multinational companies.
dollar, corporate, earnings, euro
413
2015-40-24
Tuesday, 24 March 2015 07:40 AM
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