A strong dollar is a sign of a strong economy, but it also comes with potential consequences. The continued strength of the dollar may lead to more volatility in the stock market. A strong dollar is a problem for many large US companies because it reduces the value of its sales and international profits.
Several major US companies, including Hasbro, Harley-Davidson, the maker of motorcycles, and Gillette, the owner of Procter & Gamble, have warned that the strength of the dollar is negatively affecting their financial results.
A strong dollar can also cause problems for large US firms at home, helping to make imported products cheaper, compared to local firms' products.
On the other hand, American goods are now more expensive in international markets because of the strength of the dollar, which is a source of concern for giant technology companies such as Apple.
"Major technology companies are global companies that rely on international markets, and if interest rates rise and the dollar follows, it will reduce the purchasing power of foreign customers," said Jonathan Curtis, managing director of the Franklin Technology Fund.
TD Ameritrade, chief market analyst, acknowledged that a strong dollar was a problem, but believed that cheaper imports for US consumers and retailers could offset the profits that multinationals lost. He explained that improving the purchasing power of the US citizen kept the economy afloat.
The strength of the dollar may backfire
Some warn that the strength of the dollar coupled with the trade war policies currently raging with China could weaken America's economic power.
"Regardless of the current situation, President Donald Trump can still influence politics through measures such as trade agreements by issuing executive orders. Tariff tariffs and the strength of the dollar pose a threat to global growth," wrote Bryan Levitt, senior strategist at Oppenheimer Fands.
If the dollar continues to rise, this may put more pressure not only on China, but also on fragile emerging markets like Turkey, Argentina, Indonesia, and all countries with dollar debt.
"With US economic growth disrupted and global growth slowing, the rise in the dollar could make the financial situation more difficult outside the US and exacerbate emerging market vulnerabilities," wrote Katie Nixon, chief investment officer at North Trust Trust.
The strength of the dollar may bring us down in many other economies around the world, which in the end could also have a negative impact on the United States.