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The dark side of the stronger dollar
The US dollar has had a strong month since
President-elect Donald Trump's win in early November.
The greenback rose against most major developed and
emerging market currencies and as of Friday is
hovering around 100.90.
*hovering: 等於floating, 在一區間上下移動。
At least part of that appreciation could be
attributed to the markets reacting to Trump's proposed fiscal policy
initiatives.
And although it's been in a somewhat consolidative position this past week, analysts argue that the greenback still
has some room to roar going forward — and that will likely have reverberations
throughout the global economy.
*consolidative position: a solid position, 比較持平一般的位置、應有的水平
"Developments this week support the global
reflection and curve steepening theme, tying in with our bullish USD view," a Morgan Stanley team led by
Hans W. Redeker wrote in a note to clients on Friday.
*curve steepening theme: 向上的走勢。若要表示向下的走勢，則以curve
descending theme表示。
*tie in with Sth. : 等於be in line with Sth., 與某事物相連結。
"The OPEC agreement should keep inflation expectations supported, while
President-elect Trump's Treasury secretary pick has suggested he would consider
longer-end issuance,
which would steepen the curve and support USD. While the USD rally has been
substantial, positioning is not extreme," they explained.
*longer-end
issuance: ?
*positioning
is not extreme:
A strong dollar could be
problematic for Americans
Perhaps more interesting than the dollar rally itself is
what it actually means for companies and consumers going
forward, since a stronger dollar can come with negative side-effects for
US companies, especially those with heavy international
exposure.
*with heavy
international exposure: 頻繁進行國際/跨國貿易的(公司)
Effectively, if the greenback
strengthens against another currency, then goods
and services in the US become more expensive for people using those other
currencies outside the states. Therefore, they might end up buying less of
those American-made goods and services going forward, which is then bad
for American producers.
*to strenghthen
against : 對(某貨幣)升值; 等於 to
rally against
Already some US companies and business owners have
addressed this issue. On Monday, the Dallas
Federal Reserve released its latest
assessment of business activity in Texas, which includes comments from survey respondents.
One respondent in food manufacturing pointed a finger at the peso, arguing that
its weakness could spell bad news for his firm.
*survey
respondent: 問卷受訪者
*point a
finger at Sth: = point out Sth, 特別指出(某事)。
"The recent devaluation of the peso will make our
products much less competitive in Mexico and much of Latin America. We could
see a double-digit decrease in exports to this region," the respondent
said.
Moreover, respondents in the Federal Reserve's recently
released Beige Book, a complication of anecdotes on the economies of the
Fed's 12 districts, also commented on the downside of a strong
dollar. In particular, some wondered whether tourism would remain strong if the
currency continued to rally against other majors.
And last week in interview with CNBC's "Squawk
on the Street" on Wednesday, Meg Whitman, the CEO of Hewlett
Packard Enterprise, addressed this issue as well:
"The currency headwinds
are very real. Because when the dollar is strong, our
goods are more expensive overseas. And so, let's say someone in Europe was
going to buy 1,000 servers, now maybe they'd only buy 800 because the dollar is
so strong. So, listen, we've got to manage that. That's part of our new
reality. We've got to get our cost structure in line."
*headwind: 逆風; 困境。順風則為a
following wind。
Even before this recent dollar rally, US companies have been blaming the
stronger dollar for weaker profits over the last few quarters.
A stronger dollar also can hurt
those abroad
Although the US is no longer the
sole dominant economic hegemony, the dollar is still
the main currency used on the global stage.
*dominant
economic hegemony: 強勢貨幣
In light of the appreciation, bank economists and
analysts are starting to think about the possibility of a global dollar
shortage in the near future, as Business Insider's Matt Turner wrote earlier this week.
A stronger dollar stands to wedge companies
that borrowed in dollars into an uncomfortable position:
not only is it harder to repay the debt, but it's also harder to roll over loans when they come due.
*to wedge Sth into a position: 把某事物推到某位置; wedge是任何三角形的省力輔助工具，用來輔助切開、推開某堅韌事物。
*to roll
over a loan: 延長貸款清償期限
"As non-US borrowers struggle to roll a gigantic
stock of USD-denominated debt,
the cross-currency complex will be a channel of stress," Societe Generale
said in a 124-page opus on the outlook for the fixed income markets.
*USD-denominated: 美金計價
"The challenge looks even fiercer for non-US
borrowers who have borrowed in USD (dollar strength will make it harder to
repay the debt). There are plenty of them, as the outstanding of
USD-denominated credit to the rest of the world has more than doubled over the
past 10 years to nearly USD 10trn," the bank added.
On the bright side...
Of course, it's not all doom
and gloom; a stronger dollar also happens to be great news for
American consumers.
The thinking here is the reverse of the above mentioned
problems for US companies with a lot of international exposure: If the
greenback strengthens against another currency, then goods and
services in the other country become cheaper for Americans. And, therefore,
they might end up buying more going forward.
So if you've been thinking of taking a vacation to
Europe or Japan, now's probably a good time to go. You'll get the most
bang for your buck.
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