Commentary
Relative strength of the U.S. dollar is expected to continue, propelled by the Federal Reserve’s determination to combat inflation by tightening monetary policy.
The dollar’s strength has been a headache for U.S. multinational corporations, whose revenues earned in other countries are worth less in dollar terms after currency translation. U.S. companies report earnings in the local currency.
But this dynamic has also created a unique opportunity. Like U.S. vacationers landing in Europe suddenly armed with more purchase power, overseas companies now look mighty cheap to U.S. companies looking to make acquisitions.
The dollar has risen around 20 percent year-to-date against the British pound (GBP). It is up around 16 percent against the euro (EUR), and its nearly 30 percent gain against the Japanese yen (JPY) is even more pronounced. This means any acquisition in those markets is suddenly massively discounted compared to the beginning of the year—everything else being equal….