Market News

(Bloomberg) -- At a time when tariffs and trade wars pose risks to corporate bottom lines, at least one bit of collateral damage doubles as a silver lining: a weakening US dollar.

The Bloomberg Dollar Spot Index has dropped almost 4% since its January high on a closing basis, providing some relief to US companies which do business abroad and were expecting a large foreign-exchange hit in the year ahead.

A lower dollar could “directly contribute and boost corporate bottom lines” Howard Du, a currency strategist at Bank of America Corp. said, adding that earnings could benefit more from a weakening greenback versus the impact of the dollar strengthening by the same amount. On average, about 30% of revenue for S&P 500 companies is derived from outside of the US, Du said.

Recent moves could mean less of a currency headwind in fiscal 2025 than what McCormick & Co Inc. had initially guided, Citi analysts wrote in a note. Weaker greenback could also put Cooper Cos Inc. “in great shape” to reach or exceed the top end of its earnings per share guidance range, said Chief Financial Officer Brian Andrews on the medical devices’ earnings call in early March. About half of Cooper’s revenue comes from outside the US.

US multinationals doing business abroad often find their profit inversely tied to the value of the dollar, since a weak domestic currency helps increase demand for goods abroad and boosts the dollar value of overseas sales when repatriated. A weaker greenback also makes operating less expensive for firms whose international divisions buy commodities priced in dollars.

The earnings tailwinds come after the dollar’s surge in the fourth quarter of last year whacked the profit outlook for some of the world’s largest companies, including Amazon.com Inc. and Apple Inc. Bloomberg’s dollar index ultimately rose more than 7% from October through December, buoyed by sticky US interest rates as well as the election of President Donald Trump.

Heading into the year, the trend looked set to continue, prompting warnings from the likes of McDonald’s Corp. — which forecast an impact of 20 to 30 cents per share on 2025 profit — and Uber Technologies Inc., which flagged a larger foreign exchange hit in the first quarter.

Sentiment turned quickly with the dollar slumping 2.3% in the first week of March. A will-they-won’t-they on tariffs prompted a spike in uncertainty at a time when increased defense spending in Europe boosted the single currency’s value against the dollar.

Though the weaker US dollar looks like a tailwind for most multinationals, the new political regime has put “much immediate uncertainty into the economy,” said Scott Devitt, managing director of equity research at Wedbush Securities Inc.” The currency move “is definitely secondary to the main event,” Devitt added.