U.S. Dollar Index Gaining Momentum

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U.S. Dollar banknotes are seen in this photo illustration taken February 12, 2018. REUTERS/Jose Luis Gonzalez/Illustration

Not that long ago the U.S. Dollar was struggling. Today, the dollar is starting to regain its momentum. The index that compares the dollar to other global currencies such as the euro and the yen is up more than 3.5 percent over the past two weeks. Many global analysts had written off the dollar as a puny currency. Now, global analysts are started to rethink just how mighty the U.S. currency is compared to other currencies.

Earlier in the year, big companies that including FedEx and Nike were attributing their strong earnings to the dollar’s weakness. A weak dollar helps multinational companies by making their products cheaper in foreign markets. Additionally, companies receive an accounting benefit in the U.S. by reporting increased revenues in foreign nations when they turn their sales into international currencies. A stronger dollar could pose a problem for some of the largest companies in the U.S.

Companies are rethinking their earnings expectations for the year if the dollar remains on a tear. Without a favorable currency translation, exchange rates will not be the same and companies will be forced to adjust their earnings to the downside for the rest of the year.

Big companies such as Apple and Google are acknowledging the strength in the U.S. dollar and how it could potentially hurt profit from international sales. Many of the biggest companies in the U.S. receive a large portion of their revenues from foreign markets. The strength in the dollar is expected to continue, according to analysts.

If the Federal Reserve continues to raise the target interest rate this year, it could further strengthen the dollar. If the European Central Bank continues to remain neutral on its target interest rate, then the dollar could gain even more strength. A strong economy and rising inflation in the U.S. could ultimately trigger more rate hikes in 2019 by the Federal Reserve.

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