Dollar on Steroids Will Cost US Exporters $50+ Billion, Report Warns

The US Federal Reserve’s successive interest rate hikes since March have pushed investors to go dollar-heavy, pushing the greenback up against the British pound, the Japanese yen, the South Korean won and other currencies, and contributing to the liquidation of nearly $10 trillion in stock market assets since the start of the year.

The overly strong dollar resulting from fed tinkering with the lending rate may be good news for US consumers as imports become cheaper, but is bad news for corporations trying to sell their wares to other countries, with the latter bracing for big losses, economists and market observers have told US business media.

“We had a great quarter, but yet again, the dollar had an even stronger quarter, and we continue to see the impact on foreign exchange and currency fluctuation on our financials,” Marc Benioff, CEO of cloud computing and enterprise software company Salesforce, said in a recent earnings call.

The California-based company expects to lose over $800 million in sales thanks to the strong dollar. Consumer goods manufacturing giant Procter & Gamble has penciled in losses of $900+ million after taxes for the year.

Other companies, including Microsoft, Johnson & Johnson and Netflix also expect the strong dollar to eat away at profits.

Wolfgang Koester, global head of financial institutions at San Diego-based software company Kyriba, told CNBC on Monday that US companies have lost at least $50 billion from the greenback’s exchange rate against other currencies already.

“Hits to the revenues is the first and bottom line of this thing. So as you know, when the dollar strengthens and you’re doing business abroad, that means you get less dollars back. So we’re seeing already that in the first half of this year, US corporates have lost in excess of $50 billion in revenues from foreign exchange and from their strength in the currencies,” Koester said.

The Fed kicked off what it dubbed as an interest rate “tightening cycle” in March in a bid to get a grip on soaring inflation, which reached its highest rate since the early 1980s this year amid rising global consumer demand and the trillions of dollars in cash printed by the US government as Covid relief stimulus in 2020 and 2021. The interest rate is currently in the 3-3.25 percent range, its highest point since 1994, and the Fed expects rates to continue climbing before peaking between 4.50-4.75 percent later this year.

The rapid growth in strength of the dollar has led some of America’s allies fearing a currency crash worse than anything seen since the 1997 Asian financial crisis, an event that could formally kick off a global recession.

An analysis in China’s Xinhua newspaper on Monday accused the United States of “disrupting” the global economy and using the dollar’s “overwhelming might to transfer the crisis” facing America “to the rest of the world.”

“The huge spillover effect of the Fed’s interest rate hikes will have obvious negative impacts on the world economic prospect,” China Institutes of Contemporary International Relations researcher Chen Fengying told the outlet, warning that developing economies are likely to be hit most severely.

Xinhua pointed to Washington’s disbursement of trillions of dollars in Covid relief funds as one of the key causes behind today’s inflationary crisis. “Unfortunately, ‘dollar hegemony’ has enabled the United States to hold the world hostage to pay heavily for its own experiment and policy mistakes,” the outlet suggested.

The dollar bubble threatens to compound the global energy and food crises, which similarly threaten developing countries most.

On Friday, Russian President Vladimir Putin accused the United States and its allies of seeking to preserve a global “neocolonial system” by using currencies and technology to exact “tribute” from the rest of the world, but suggested that the US-dominated system is an emperor with no clothes. “People cannot be fed with printed dollars and euros. You can’t feed them with those pieces of paper, and the virtual, inflated capitalization of western social media companies can’t heat their homes…you need energy,” Putin said.