While savers and retirees are excited about the recent strength shown by the U.S. dollar, not everyone is happy about it. Since the dollar has strengthened, corporate earnings have taken a hit, and it is no coincidence. A stronger dollar means that U.S. goods sold overseas all of the sudden become more expensive, and as a result sales suffer. Currency expert Kathy Lien explains this phenomenon in more detail below.
I have spoke often about the consequences of a strong currency. In the case of the US, the weak dollar in the first half of the year has helped to contribute to Q2 and for some Q3 corporate earnings as well. However I strongly believe that Q4 earnings will be very bad. Partly because of the global recession and partly because of the strong US dollar.
There is an article in the Wall Street Journal today titled “Stronger Dollar Cools Sales in Overseas Hot Spots” that talk about this same theme.
But I want to show you their charts on US exports:
And now take a look at a chart of the Dollar Index:
Do you see the correlation?
Also, the strength of the Japanese Yen is a big reason why Toyota is forecasting their first loss in 7 DECADES!!
We are indeed going through tough times as most don't really know how to respond to these currency fluctuations. I hope things will get clearer in 2009 with global leaders providing a better direction.
Post a Comment