Although the US stock market has rebounded in recent weeks, one development that could cap its upside is a further rally in the dollar. A strengthening currency causes exporters to lose market share unless they cut their margins, and undermines the competitiveness of firms selling goods at home that compete with imports. What’s more, a significant chunk of the overall profits of US companies – especially the multinationals that dominate the major stock indices – comes from the earnings of their foreign operations. The more the dollar climbs, the less those earnings are worth in US currency.
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