US COMPANIES reporting earnings in coming weeks are likely to mention one common factor gouging their results: the strong dollar.

The US currency stands near a 20- year high against a basket of its peers and is up 15.1 per cent in the past year, lifted by a hawkish Federal Reserve and investors seeking shelter from turbulent markets.

A strong dollar can be a headwind for US companies as it makes exporters' products less competitive abroad and hurts multinationals that need to convert their foreign profits back into the US currency.

Each percentage point of year-on-year increase in the US Dollar Index, which measures the dollar against six other currencies, translates to a 0.5 percentage point hit to S&P 500 earnings growth, analysts at Morgan Stanley estimated.

"You seemingly can't get a break right now," said Bill Stone, chief investment officer at the Glenview Trust Company.

"We're starting to get some relief from oil prices, but you've still got the dollar banging on you," he continued.

IBM, Netflix and Johnson & Johnson were among the companies that in the past week cited the dollar's strength as a headwind.

Johnson & Johnson joined Microsoft by cutting its guidance due to the impact of the greenback's rise.

This week's results from Apple, Microsoft, Coca-Cola and a slew of other companies will give investors a better picture of how businesses are holding up in the face of the strong dollar and soaring inflation.

Investors are also awaiting what the Fed will have to say on those topics at its monetary policy meeting next week, at which it is widely expected to deliver another jumbo-sized 75 basispoint rate increase.

The dollar's strength threatens to combine with high inflation, supply chain issues and other factors to weigh on earnings, analysts said.

"The rate of change on the dollar exhibits a strong negative correlation over time vs S&P 500 earnings revisions," Morgan Stanley's analysts said in a note.

"USD strength comes at an inopportune time for corporates already facing margin pressure and increasingly weaker demand."

Reuters

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