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Is the dollar having a “strong effect on corporations’ bottom line”? – BBH


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FXStreet (Guatemala) – Analysts at Brown Brothers Harriman noted how the Federal Reserve’s real broad trade-weighted measure dollar rose 2.1% in January and explained that it is now a little less than 15% above the record low set in July 2011.

Key Quotes:


“In yesterday’s Financial Times, Edward Luce recapitulates many arguments that are circulating among investors. Although he recognizes that what is happening is not a 1930s-style beggar-thy-neighbor competitive currency devaluations, he warns of the “”undertows” and the “perils of a strong US dollar.


Expressing the concern of many equity investors, Luce argues that the dollar’s rise is having a “strong effect on corporations’ bottom line”. This has been repeated so often that is must be true. But it is not. A report cited by MNI found that “58% of companies with high overseas exposure have beaten on EPS vs. 46% of the pure domestics. MNI also notes that the ISM’s January report on manufacturers, there was not concerns expressed about the rising dollar (but there was concern about falling oil prices).


Luce cites several companies that did cite the stronger dollar as a negative factor. What happened to journalistic skepticism? He simply repeats what the corporate officials have said. Isn’t that the job of a corporate flak? We need journalists to question public and private sector officials. Som,e like Aloca and L’oreal, cited the currency developments as positive. Not only does Luce abdicate his journalistic responsibilities, but he stacks his deck.”