The Growing Concern Over the Surge in the US Dollar

by Warren Seah

Analysts are raising concerns about the recent surge in the value of the U.S. dollar, cautioning that it could become another challenge for U.S. stocks during a difficult September.

According to Andrew Greenebaum of Jefferies, the USD (U.S. dollar) has climbed above its average second-quarter level since early August. This change is significant because it means that the U.S. dollar has shifted from being a tailwind to a headwind for corporates. As investors close out the third quarter this week, this trend is expected to continue and intensify.

A strong and rapidly strengthening dollar is often viewed as problematic for large U.S. multinational companies. This is due to the fact that a stronger dollar makes their products more expensive for international buyers. Additionally, any income earned overseas becomes less valuable when converted back into dollars.

The surge in the U.S. dollar can be traced back to 2022 when Treasury yields experienced a sharp increase in response to the Federal Reserve’s series of aggressive interest rate hikes. As a result, the ICE U.S. Dollar Index DXY, which measures the value of the dollar against a basket of six major currencies, reached a 20-year high last October before experiencing a significant decline.

Despite these concerns, experts continue to closely monitor the situation and its potential impact on the overall market. It remains to be seen how U.S. stocks will navigate through this challenging period amidst the headwinds presented by the surging U.S. dollar.

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