Why is the strengthening of the US dollar a nightmare for investors?
A strong US dollar is not about a strong United States economy as many experts say. You must know that the United States economy is not as strong as the dollar at least until now. So the strength of the US dollar referred to here is the relative strength of the US dollar against other currencies where valuations are reduced in an effort to help growth, while the Fed has completed its accommodate monetary policy. In addition there is a role for debt to be paid so that it causes fewer dollars in the system and finally the USD strengthens. The following is a summary of the impact of the strengthening of the dollar on the economic sector summarized by Forex Online.
Impact of USD Strengthening for the Economic Sector
The strengthening USD is in fact also bad for large multinational companies. This is because a strong dollar will make American goods more expensive when sold abroad. If the US dollar continues to appreciate, this can also have a negative long-term impact given that there is a high probability that the price of American goods will make foreign consumers switch from American brands.
The sectors most affected by the strengthening of the dollar are the technology, energy and basic materials sectors. But make no mistake because the big names of American companies outside this sector can be badly hit because of the strengthening dollar. The following are some of the names of companies that have the potential to be negatively affected by the strengthening US dollar:
- General Motor Co.
- 3M Company
- Procter & Gamble Co.
- Estee Lauder Companies Inc.
- IBM (International Business Machiness Corp.)
- Chevron Corp.
- EI Du Pont De Nemours & Co.
- United Technologies Corp.
- Oracle Corp.
If a multinational company can experience a negative impact, on the other hand, domestic companies will not get a negative influence from the strengthening of the US dollar. But remember that you still need to be careful. The domestic economy is often shown to be very strong but this is based more on the labor market. If you want to know the truth of the labor market, don’t just look at the unemployment rate, but look at the labor force participation rate as well.
There is a reason why the Fed has kept interest rates at record lows for years.This is due to a lack of sustainable wage and consumer spending. The following is a list of company names that should potentially be better with the strengthening of the dollar. Although most of the shares will experience a difficult time to see appreciation over the next few years. However, if you want to avoid the impact of the strengthening dollar then consider these names:
- Alaska Air Group Inc.
- Dollar general Corp
- The TJX Companies Inc.
- CVS Health Corp.
- The Allstate Corp.
- United Health Group Inc.
If you are not sure that the US dollar will continue to decline and worry about the impact of the US dollar on your investment then consider moving away from multinational companies and try to look at companies that only have domestic exposure. It never hurts to do a little research before you decide to put your investment funds into a company.
Investing in large foreign companies is tempting considering financial strength and strong market share, but you should also be vigilant about factor X, one of which is that the USD strengthens, which could damage your investment plan. So stay alert before you decide on your investment steps in the future. Good luck for your next investment!