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 The greenback's recent gains have lifted the dollar index <.DXY> - a
measure of the dollar's value relative to six currencies - for 10
consecutive weeks.
That marks the dollar’s longest rally since the index was created in
1973 - and could pose significant headwinds to dollar-sensitive
sectors of the market, particularly companies that respond to
commodity prices affected by the greenback, and multinationals that
do much of their business overseas.
“For the past few years, the U.S. dollar has been trading in a
relatively quiet trading range. This summer, something changed. We
are now seeing a new uptrend develop,” said Adam Sarhan, founder and
CEO of Sarhan Capital in New York.
Analysts have already pointed fingers at the dollar for the decline
in prices of commodities like precious metals, corn and oil in
recent weeks.
U.S. multinationals with large streams of revenue from overseas also
stand to lose.
“If you’re a consumer products company that does a lot of business
overseas, it’s not going to help you. If you’re a large tech company
and you do a lot of business overseas, that’s not going to help
you,” said Larry Glazer, managing partner at Mayflower Advisors in
Boston.
“If you look at Exxon, as well, they’re clearly very diversified but
affected by the consequences of currencies.”
Shares of Exxon Mobil <XOM.N> have lost 5 percent over the last 10
weeks even as the broader market hit repeated new highs. About 36
percent of Exxon's revenue comes from the United States, the rest
from overseas.
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Yet dollar-driven losses in some parts of the market may be offset
by gains in others, especially retail. Lower oil prices favor the
consumer, who can pocket the savings or spend the cash in stores.
“The stronger dollar benefits U.S. consumers because they are the
lion’s share of the economy, and any time you get a tailwind for
consumers, it’s good for the U.S. economy, at least in the short
run,” Glazer said.
Much of the calculus of whether the dollar’s rise will become a net
negative for U.S. stocks depends on domestic inflation rates, as
well as the speed and scale of the currency’s gains, market watchers
said.
"The euro zone is fragile ... the British pound is also weak, and
geopolitical or economic woes remain a threat. As long as it is a
healthy and normal advance, they should be able to adjust and
prepare for it," Sarhan said.
"But if the move is very large, fast or erratic, those consequences
[could] be immeasurable."
(Reporting By Akane Otani; Editing by Nick Zieminski)
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