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A Strong Dollar Signals Both Good News and Bad

A Strong Dollar Signals Both Good News and Bad

The dollar is back, but it’s not good news for everyone.

The dollar rally is both good and bad news, depending on where you stand.

The US Dollar Index, which measures the value of the greenback against the euro, the yen and several other major global currencies, is running wild. It’s risen more than 3.5% in just the past two weeks and is now up slightly for the year.

The dollar, which has been on a tear lately, reversed early losses last week and edged higher to a new high for the year.

It wasn’t that long ago that the dollar was languishing, and big companies such as Nike, Costco, Oracle, and FedEx were crediting the weaker dollar for boosting their earnings.

A weaker dollar boosts the profits of multinational companies because it makes their products less expensive in foreign markets. There’s also an accounting benefit: companies get to report higher revenue from abroad when they translate their international sales back into dollars.

The dollar’s rally: Not good news for everyone

Apple even acknowledged in its earnings call Tuesday that a stronger dollar could hurt profit.

“Because about two-thirds of our company is outside the United States, a weak dollar is a positive for our gross margins,” said Apple chief financial officer Luca Maestri. “A strong dollar, as it’s been during the last four years, has been a bit of a headwind.”

Nevertheless, many analysts think the strong dollar trend will continue with the Federal Reserve expected to raise interest rates at least twice more this year, and perhaps three more times in 2019. That could boost the dollar even further, especially because the European Central Bank is unlikely to hike rates anytime soon.

Meanwhile, look out for Friday’s jobs report. A better than expected number of jobs added could lead to even more optimism about the economy, which should lift the dollar further.

President Trump once touted the benefits of the weak dollar, but he has changed his tune in recent months. After Treasury Secretary Steven Mnuchin described a weaker dollar as “good for trade,” Trump said in January that the dollar will get “stronger and stronger.”

The question is whether that will do more harm than good for large US companies, the stock market and the broader economy.