Analyst says strong USD is pressuring US firms

<p>An analyst in the US says inflation remains a concern despite Fed monetary policy being at a restrictive level. The resultant rise in yields, and the US dollar, is a headwind to US based multinationals. </p><p>The remarks come from a client note from Liz Young, head of investment strategy at SoFi (an online finance firm in the US). In summary:</p><ul><li>solid economic data is a good sign. </li><li>monetary policy has been taken to a restrictive level. … So far, it hasn’t had the full intended effect, and inflation remains a concern</li><li>the rise in Treasury yields has put pressure on borrowers</li><li>the rise in the US dollar puts pressure on firms that rely upon international revenue (rising USD pushes down the local (US) value of foreign receipts)</li><li>
“… happening at a time when we are hoping inflation will continue to fall in an orderly fashion back down to its target level … the recent dollar strength and broadening interest rate differential for the U.S. … when added to the intended effect of monetary policy tightening, the typical effects of higher borrowing costs, and the possible headwind to U.S. multinational corporations, the move looks more risky.”</li></ul><p>The USD index, DXY. While the points made above are valid there are benefits of a rising USD to firms that import inputs, for example. Its not all bad news. </p>

This article was written by Eamonn Sheridan at www.forexlive.com.