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The mighty US dollar gets even stronger



When Fed chair Jerome Powell signaled last month that interest rate increases probably won't happen anytime soon, many experts thought it would hurt the dollar. Powell said the central bank needed to be "patient" and see what is happening next for the US economy.

Low interest rates usually go hand in hand with a weaker currency. Think of Japan and the Yen during lost decades of negative prices, deflation and a weak economy.

But the dollar index has risen 1.5% against other currencies after the Fed's January 30 meeting. It has taken many surprisingly.

An increase of 1.5% may not sound like much, but it is actually quite a dramatic move in the usually sleepy world of currencies. The dollar is now slightly updated.

Blue chip US companies damaged by stronger greenback

It may end up as a problem for large US multinational companies ̵

1; market leaders who are the major components of Dow and S & P 500. A stronger dollar eats for value of their international sales.

Dow Components Apple ( AAPL ) Boeing ) [] ) and 3M ( MMM ) generate a significant portion of sales from foreign markets. There are stocks that almost all average investors probably have some exposure to popular ETFs or mutual funds on a 401 (k) account or IRA.

A stronger dollar has already helped to slow down the growth of companies that have reported fourth-quarter earnings.

S & P 500 companies with more than half of their sales from the US have posted 16.6% profit growth, according to FactSet data. Compared to a growth of just 8.4% for companies with more than half of their sales generated abroad.

The strong dollar is just one of the reasons why multinational profits have delayed. Economic weakness in Europe, the UK, China, Japan and other international markets is also to blame.

These two things are related: If the US economy stays healthier than most other major developed and developing countries, the dollar is likely to move forward.

If that happens, it can make the situation even worse for many of America's largest companies when reporting results from the first quarter of April.

China's decline makes the dollar look more attractive

Several experts believe that the dollar fight has bones left in it.

Jameel Ahmad, global leader in currency strategy and market research at FXTM, a foreign trade brokerage firm, said in a report this week that investors have been attracted to the dollar because the US economy still seems to be in good shape.

He added that "those who are exhausted from yo-yo trade headlines" about the US and China are now starting to focus on the fact "China's moderating economic conditions are still a major overhang for the global growth story."

In other words, the dollar can continue to accumulate if China's growth slows further – especially if it is to pull other emerging markets down. But if this thread eventually hits the United States, most experts expect it to not hurt US economic growth so much.

Therefore, the dollar can continue to be the "cleanest dirty shirt."

"It's not a question of people flocking to dollars because they want to. It's that data from Europe and China and elsewhere has just been significantly worse," said Boris Schlossberg, CEO of FX Strategy at BK Asset Management.


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