“Big technology companies are reaping the whirlwind of a strong dollar, as the sector becomes an unlikely victim of foreign exchange volatility, Axios’ Javier E. David writes.
Why it matters: In normal times, car companies and other multinationals that sell physical goods are the most sensitive to fluctuations in the dollar.
- Needless to say, with rates soaring alongside inflation expectations — even as growth falters — these are hardly normal times.
- Particularly against the euro and yen, the U.S. currency is creating what the Financial Times referred to last week as a “currency shock [that’s] muddled an earnings period that was being closely studied for signs of a weakening global economy.”
It’s unusual to see Big Tech (certainly not this many companies at the same time) cite currency volatility as an issue. Most of them sell software-based services, rather than physical goods like cars or makeup.
What they’re saying: Still, foreign exchange volatility is “a headwind for Big Tech,” as 35%-40% of the industry’s sales are in Europe, veteran tech analyst Dan Ives tells Axios in an email.
- “As they sell in local currency this will be a negative theme over the coming year with a strong greenback,” Ives added.
What we’re watching: The Fed’s next policy moves. If the current economic angst gives way to a deep recession, the central bank may reverse course. That would narrow the interest rate differential boosting the greenback.
Go Deeper note: Dollar’s gain, Big Tech’s pain