US Dollar at 13-Year High Poses Risks to Global Growth, Corporate Profits

By:
Dominic G. Diongson
Published Date:
Nov 18, 2016

Sierra Nevada
The U.S. dollar at a 13-year high is raising concerns that the strong American currency will heighten risk, including undermining global economic growth and drag down U.S. corporate profits, according to The Wall Street Journal.

The dollar is trading close to parity against the euro—which, just two years ago would have fetched $1.40. The dollar has also appreciated against the yen and currencies of emerging countries, the Journal reported on Friday.

The U.S. currency’s gain is underpinned by the Federal Reserve indicating that it will raise interest rates soon and hopes that the new administration under President-elect Donald Trump will implement measures including fiscal spending and tax cuts to spur economic growth.

Yet, the dollar’s strength might be hurting developing countries, which could see a flight of investment to dollar assets. Emerging nations such as Malaysia and Indonesia recently have been taking measures, including raising interest rates, to prop up their own currencies, according to the Journal. Higher interest rates, in turn, could stunt economic growth. A weaker currency also makes it expensive for people of other countries, such as those in Europe or Canada, to buy American goods, which would weigh on U.S. companies’ earnings.

The Mexican peso has lost 10 percent against the dollar since the Nov. 8 election to trade at record lows, while the Brazilian real has dropped 6.2 percent, the Journal reported. 

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