The Impact of US Dollar Strength on Corporate Earnings

The US dollar's surge over the past six months has had a significant impact on corporate earnings. Companies ranging from tech giants to consumer brands have cited foreign exchange (FX) headwinds as a major concern in their recent earnings reports and guidance.

Impact on Technology Companies

Megacap tech companies, such as Apple, Alphabet, Microsoft, Tesla, and Meta, have reported a significant portion of their revenue from overseas sales. As a result, the strong dollar has led to slower revenue and earnings growth due to unfavorable FX conversions.

Impact on Other Industries

However, the impact is not limited to technology companies. McDonald's, Coca-Cola, and Johnson & Johnson have also issued warnings about the detrimental effects of a strong dollar on their earnings. McDonald's anticipates a "full year headwind" to 2025 EPS, while Coca-Cola forecasts a currency headwind of 6% to 7% and Johnson & Johnson predicts a $1.7 billion hit to full year sales.

Drivers of Dollar Strength

Two primary factors have driven the dollar's strength: President Trump's election and the Federal Reserve's recalibration of its future easing plans in light of strong economic data. Trump's proposed policies, including high tariffs on imported goods and tax cuts for corporations, have contributed to a more bullish sentiment around the dollar.

Outlook

Economists predict that Trump's policies, particularly the tariff plans, will lead to higher inflation and force the Fed to keep interest rates higher for longer. This suggests that the cycle surrounding bullish dollar sentiment is likely to continue. Goldman Sachs projects the dollar to appreciate by another 3% over the next twelve months.