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Russian (RU) Saqib Iqbal Ahmed
Wed, Jul 16, 2025, 6:07 AM 5 min read
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By Saqib Iqbal Ahmed
NEW YORK (Reuters) -Large U.S. multinationals should soon start showing the positive effects of the dollar's tumble in recent months, reversing the situation in the past few years when the greenback's strength hurt companies with significant foreign revenue.
The Dollar Index, which measures the buck's strength against six major currencies, is down about 10% for the year, due to rapidly changing U.S. trade policy and worries about U.S. growth and government debt.
About half of that drop happened since April 2, when U.S. President Donald Trump announced outsized import tariffs against trading partners that started a panic about investing in U.S. assets.
For the April-June period, the index, which is heavily weighted toward the euro, averaged 99.74, down 6.5% from the first quarter average, the largest such decline over consecutive quarters in more than 30 years. The effects of the dollar's slide are expected to start showing up in second-quarter earnings season just getting underway.
While that dollar's fall reflects investor worries about the U.S. economy's strength, it can help some companies. A weaker U.S. currency makes it cheaper for multinational companies to convert foreign profits into dollars, while also boosting the competitiveness of exporters' products.
"It's an absolutely huge move," Greg Boutle, head of U.S. equity & derivative strategy at BNP Paribas, said. "It is going to flatter earnings a little bit this quarter and also feed its way to guidance."
The dollar's impact on overall earnings is usually small, but can grow more meaningful when the currency experiences a large swing.
Every 10% drop in the dollar translates into a profit surprise of about 2%, at the S&P 500 level, according to estimates from research and strategy firm Macro Hive.
That would be welcomed by investors increasingly worried about the earnings impact of evolving trade and tariff policies. The second-quarter profit reporting season started this week.
"Whatever the beat, miss or forward guidance was going to be without the FX effect will obviously be a little bit better with it," Boutle said.
The dollar's weakness this year, after a 7% rise in 2024, which hurt corporate results last year, took many market watchers by surprise.
"Certainly a lot of companies came into the year assuming a headwind .... That's flipped. That's a positive for earnings," Patrick Kaser, portfolio manager at Brandywine Global, said.
While earnings growth is expected to decelerate from the first quarter, the weaker dollar could help to offset possible tariff effects.
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