The strong dollar is cutting billions in profits for US companies
The currency's rise to its highest level in 20 years is taking its toll on global companies
Gabriel Thomas (GT)May 8, 2025
The strong dollar took billions of dollars off US corporate sales in the second quarter, prompting many to lower their forecasts for the remainder of the year.
The list of companies that have lost millions or billions in losses continues to grow after the US currency soared to a 20-year high this month, including IBM, Netflix, Johnson & Johnson and Philip Morris. This group is expected to grow even larger when tech titans like Apple and Microsoft - which conduct a significant portion of their business outside the US - release their quarterly results in the coming days.
The currency shock has disrupted an earnings period that has been scrutinized for signs of a weakening global economy as high inflation and tighter monetary policy weigh on business and consumer demand. Economic data is already pointing to a slowdown in activity as inflation eats into consumers' real purchasing power.
"Even if the dollar's rise were to stall here, the strengthening we've seen over the past 12 months would be enough to prompt further downgrades in earnings estimates based solely on currency headwinds," said Max Kettner, strategist at HSBC .
The dollar was supported by the Federal Reserve as Washington policymakers quickly hike interest rates to cool inflation, which hit a 40-year high in June. They are expected to make another sharp rate hike next week and further tighten policy this year to curb demand, leaving interest rates well above those in Europe and Japan. Higher interest rates usually attract foreign investors, which boosts demand for the currency.
However, US companies with large overseas operations are suffering as the strong dollar lowers the value of their international sales, making them less competitive relative to their local peers. An economic slowdown across Europe and lockdown measures in China aimed at curbing the spread of Covid-19 cases are also a thorn in the side for US companies with large overseas operations as demand slacks.
Last week, IBM warned that the dollar's appreciation could cut its revenue by $3.5 billion this year, including about $900 million in the second quarter. Johnson & Johnson lowered its guidance after the Listerine mouthwash maker warned that the soaring dollar could hurt its sales by $4 billion this year. Cigarette maker Philip Morris' currency exposure exceeded $500 million in the quarter; streaming network Netflix, which includes the drama Stranger Things, suffered a $339 million drop in revenue between April and June due to the strong dollar.
They join a long list of companies that addressed the issue before the dollar reached par with the euro, including Microsoft, Salesforce and Medtronic.
"The rate of appreciation is the strongest we've seen in over a decade," James Kavanaugh, IBM's chief financial officer, said at the company's earnings call. "All of the currencies we hedge have fallen double digits against the US dollar this year. I would say that's unprecedented."
Kavanaugh said IBM has hedged about 35 of the more than 100 currencies in which the company does business. According to Diane Jaffee, senior portfolio manager at TCW, this reaction, coupled with the high currency impact, has angered some investors. IBM shares fell 5 percent after the results, although the company beat Wall Street expectations.
Big Tech is on the back of strong The industry's presence overseas is particularly dependent on the dollar, with Goldman Sachs estimating that 59 percent of S&P technology companies' revenue comes from outside the U.S. That's well above the average for the large U.S. public companies that make up the S&P 500 groups as a whole 29 percent of their $14 billion in sales will be overseas in 2021.
"Some companies are struggling a little more with the dollar than others," Jaffee said. "Even though valuations in the tech sector have come down quite a bit, we still want very... be careful because we are worried about exchange rates and this affects technology companies even more than others."
Returns have shown that investors prefer stocks in companies that operate primarily in the United States. The Goldman index of US companies with large international exposure is down more than twice as much as its domestic counterpart this year, down 19.6 percent and 9.1 percent, respectively.
Earnings for the second quarter remain strong for now -- overall, they are expected to be up 10 percent year-on-year. Without the impact of the strong dollar, however, that number could have been closer to 12 percent, estimates Jonathan Golub, head of US equity strategy at Credit Suisse. He said that for every 8 to 10 percent rise in the dollar index, S&P 500 gains are cut by about 1 percent.
"Yields are good, but imagine how much better they would be if the dollar wasn't so strong," Golub said.
The dollar's impact on earnings often lags the actual change in currency, so a strong dollar can still be cited for several quarters even if dollar appreciation slows. Karl Schamotta, chief market strategist at Corpay, expects the dollar to peak now as many investors bet the Fed will have to slow its aggressive pace of rate hikes as the US economy slows.
"The sharp rise in the US dollar, especially against the euro and yen, has severely delayed earnings, which should be noticeable in the coming quarters," says Schamotta.
