The Dollar Today

Mike Mallak By | On January 29, 2015

Earnings season is in full swing with some of the largest companies in the U.S. reporting results, giving forecasts, and commenting on both tail and head winds.  For many multinational companies a strong U.S. Dollar has been putting a squeeze on profits.  Companies from Apple to Caterpillar to Proctor & Gamble have all commented on hits to revenue from a strong U.S. dollar.  In fact, recently the Euro to U.S. Dollar exchange rate hit an 11 year low.

The falling Euro has been a common story as the exchange rate has fallen almost 17% in just the last year.  This has proven to be a drag on U.S. firms that do business in the European Union; the third largest trade partner with the United States.  It is not just Europe where the U.S. Dollar has strengthened:  The Japanese Yen has fallen over 14% and the Russian Ruble has almost cut in half in the last year. The problem this creates for companies is that consumers in many foreign countries have reduced purchasing power for U.S. goods.  This can lead to reduced demand and lower revenues for U.S. companies selling products abroad.

At this point many companies are unwilling or unable to raise the price of their products overseas even though they are getting fewer U.S. Dollars after the currency exchange.  So, for companies with a large amount of revenue from overseas, like Proctor & Gamble or Microsoft, this has hurt the bottom line.  Some of the volatility we have seen in the market thus far in 2015 can be blamed on the pronounced affect currency is having on corporate earnings.  On the bright side though, now would be a great time for a vacation to Europe.