Is The Dollar Really As Strong As Companies Are Suggesting?

Host of companies that came out of disappointing quarterly results or forward guidance recently cited the strength in the dollar as a major challenge, including Microsoft Corporation MSFT, Caterpillar Inc. CAT and Pfizer Inc. PFE. Alan Ruskin, Global Head of Group of 10 Foreign Exchange Strategy, Deutsche Bank AG, was on CNBC Wednesday to opine on whether actually the dollar is too strong to hurt corporate profits.

“I think, obviously it’s hurting  company earnings significantly, particularly in this quarter, but I think if you looked at the overall economy and you said – hey, we are growing at 5p in Q3, we are probably going to grow little above 3p in Q4, you say hey there’s no real problems you got from broader macros standpoint,” Ruskin said.

Why Is The Move In Currency Hurting The Corporations So Much Even When They Have An Option To Hedge?

“Well, I think the move has been very, very rapid and you see central banks surprising not just corporate, but really financial markets in general,” Ruskin replied. “So, it’s quite hard to actually keep up with the speed of the dollars move, I think that’s one thing. The other thing is there’s a multi-year element to this. So, how far do you hedge ahead that’s quite a tough decision as well.”

Is The Fed Going To Let The Dollar Strengthen Over Other Currencies?

“Well, I don’t characterize this necessary as a war or obvious winners and losers in this, but I think the US economy is more robust than pretty much all the other economies out there,” Ruskin said. “It can withstand a stronger currency and of course there are feedback loops. So, a stronger dollar is effectively going to mean that the Fed will probably do less tightening.”

“ So, we are seeing disinflation forces in the US economy and that will have an impact on Fed policy and will take a little bit of the sting out of the stronger dollar as well I think going forward.”