Among the cavalcade of challenges facing corporate America, from historically high inflation to the lingering effects of the pandemic, a familiar lament is beginning to dominate C-suite conversations once again: the meteoric ascent of the dollar.
Microsoft Corp. became the latest US firm to make headlines for pointing a finger at the surging greenback, accusing it of eating away at its profits in a rare mid-season earnings forecast revision. The US currency soared on Monday to the highest since April 2020, driven by jumping Treasury yields and expectations for the Fed to deliver bigger rate hikes in coming months.
Microsoft joins Biogen Inc., Costco Wholesale Corp., Hewlett Packard Enterprise Co. and Salesforce Inc., all of which have bemoaned the stronger dollar in recent weeks.
After years of relatively serene global currency markets, foreign-exchange volatility has come roaring back as central banks around the world look to rein in runaway inflation by raising interest rates. With the Federal Reserve leading the charge, the dollar is off to its best start to a year since 2010, extending its gains over the past 12 months to more than 22% versus the yen and 15% against the euro.
For many companies dependent on overseas sales, it’s set to be a gut punch to their bottom lines. That’s because a stronger greenback lessens the value of their foreign revenue when translated back into dollars. It also makes their products less competitive as prices rise in local currency terms, reducing demand.
“There’s concern about the dollar pricing US companies out of the global marketplace, which is very significant when you consider some of our largest cap companies have the greatest bulk of their businesses overseas, or at least sizable amounts,” said Jim Paulsen, chief investment strategist at Leuthold Weeden Capital Management in Minneapolis.
To be sure, earnings revisions based on foreign-exchange fluctuations are often brushed off by investors more concerned with operational performance. In fact some market watchers say currency volatility is too often used as a convenient veil for a poor quarter.
Yet it’s clear that this go around, the stronger dollar is having a tangible impact on corporate results.
About 35% of US firms have enough exposure overseas that a stronger greenback materially hurts their earnings per share, according to Gina Martin Adams, director of equity strategy at Bloomberg Intelligence.
These include many of the country’s largest technology companies, which have complex global operations and can generate more than a third of their sales outside the US.