With China’s virus outbreak slowing the country’s growth and dampening world trade, investors have been holding tight to U.S.-based assets.
The result: the dollar has reached its highest point since October in the Wall Street Journal’s WSJ Dollar Index.
The strong dollar makes U.S. goods and commodities denominated in dollars more expensive outside of the U.S. As American goods become more expensive, exports can fall and corporate earnings and profits fall with them.
Emerging nations also will find it harder to make loan payments denominated in U.S. dollars.
S&P companies’ fourth-quarter profits are trending flat compared to 2018’s numbers. A strong dollar in a weak global economy could flatten 2020 profits as well.
Flat profits would be a factor keeping stock prices from rising.
Some analysts have predicted that S&P 500 companies’ profits could grow by 10 percent or more during the last half of this year, but many investors see the forecast based more on hope than data.
With global growth slowing and many national economies teetering on the brink of recession, a strong dollar could push some over the edge.
Donald Trump has decried the dollar’s strength, noting that it places U.S. businesses at a global disadvantage and is using it as a reason to pressure the Federal Reserve to lower interest rates even further.
TREND FORECAST: As the dollar gets stronger and U.S. exports shrink, the Fed will be increasingly likely to succumb to pressures for even lower interest rates to shore up the economy. By November, the Fed will announce zero or negative interest rates in response to the global economic slowdown.

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