Fluctuations in currencies continue to guide the US markets. Last week, the US dollar dropped 3% against the euro, notching up its biggest weekly loss against the currency in three years. The dollar turned weaker against the euro due to the dovish stance by the Federal Reserve.
Last week’s drop in the dollar was in sharp contrast to the greenback’s uptrend otherwise. It had touched a 12-year high against the euro. The euro plunge intensified with the commencement of the European Central Bank’s monetary easing program and expectations of the US Fed hiking rates.
Let's now look at how the dollar fared against the single currency last week:
|
DATE |
EURO |
U.S. DOLLAR |
|
Monday (03/16/2015) |
1 EUR = |
1.05719 USD |
|
Tuesday (03/17/2015) |
1 EUR = |
1.05977 USD |
|
Wednesday (03/18/2015) |
1 EUR = |
1.08472 USD |
|
Thursday (03/19/2015) |
1 EUR = |
1.06689 USD |
|
Friday (03/20/2015) |
1 EUR = |
1.08202 USD |
Fed’s Statement Ebb Rate Hike Fears, Weakens Dollar
The dollar weakened on the heels of the Federal Open Market Committee’s (FOMC) statement last Wednesday that indicated interest rates would be raised only gradually. In a unanimous vote, Fed officials dropped the “patient” phrase from the policy statement. Fed officials also downgraded economic growth and inflation projections, signaling it is no hurry to raise borrowing costs.
The Fed’s go-slow approach to raise rates resulted in a massive short-covering rally in the euro last Wednesday. Renewed hopes that Greece will be able to secure additional bailout funds to avoid a cash crunch also helped the euro move up last Friday. The European Commission announced that it made $2 billion of unused funds available to Greece to avert bankruptcy.
Meanwhile, HSBC Holdings plc HSBC raised its euro forecast for 2016 and 2017. HSBC predicts the euro will rise against the dollar to $1.1 by 2016 and to $1.2 by 2017 as they believe the greenback is the second-most overpriced currency in the world.
The Dollar’s Rise May Not Be Over
HSBC’s predications came in contrast to that of Goldman Sachs GS. Goldman has forecasted the euro to reach parity with the dollar by September. It is expected to further fall to 80 cents by the end of 2017. Goldman predicts the dollar will show strength as the U.S. economy continues to gradually expand ahead of the inevitable hike in interest rates.
Strategists at BNP Paribus also believe the euro will hit parity with the dollar by the end of 2015. Data from the U.S. Commodity Futures Trading Commission showed bets by hedge fund managers that the dollar will gain against the euro jumped 27% since the beginning of the year and currently remains at a two-year high.
Portfolio managers have also invested in dollar-denominated assets expecting higher returns as they remain confident about the dollar’s upside. Fears of a sooner-than-expected rate hike may have subsided for now, but chances of a stronger dollar still exist as the Fed Chair Janet Yellen did not rule out the possibility of a rate hike in June.
Meanwhile, analysts believe the ECB’s massive asset purchasing program will continue to pull down the euro, eventually boosting the dollar. ECB President Mario Draghi said the bank will buy 60 billion euros a month in assets in order to boost Eurozone’s fragile economy. Additionally, several possible risks including Greece’s exit from the Eurozone and policies by Japan’s apex bank may strengthen the dollar against major currencies.
Stronger Dollar: Bane or Boon?
A stronger dollar raises concerns about U.S. export companies by making their products costlier and decreases the profits earned in other currencies. However, it is good news for U.S. companies that import most of their materials from abroad as they find supplies to be cheaper. In case of a weaker dollar the equation changes completely.
However, in the current scenario where opinions differ regarding the dollar movement, it would be a prudent idea to invest in stocks that are unfazed by its fluctuations. U.S. manufacturing companies that predominantly produce and sell their products in the domestic market are less susceptible to foreign exchange risks. Service-oriented companies having operations limited to the domestic market are also well protected from wild currency fluctuations.
2 Safe Bets
Acorda Therapeutics, Inc. ACOR is a biopharmaceutical company based in Ardsley, NY. The company develops and commercializes noval therapies for neurological diseases. It manufactures and sells its drugs including Ampyra, Zanaflex and Qutenza in the U.S.
Acorda’s fourth quarter revenues came in at $117.9 million. The bulk of the revenues came from Ampyra, which generated $109.9 million in the reported quarter. While Ampyra is sold in the US, it is marketed in abroad under the trade name Fampyra by Biogen Idec BIIB.
This year’s expected earnings growth rate for this Zacks Rank #1 (Strong Buy) stock is 52%, more than the industry growth rate of 9.6%. The stocks’ earnings estimates for the current year were revised 17.6% upward over the last 60 days. It boasts a Zacks Industry Rank in the top 29%.
Ross Stores Inc. ROST is a chain of off-price department stores based in Dublin, CA. The company operates under the name Ross Dress for Less. It operates 1,242 stores in 33 states along with the District of Columbia and Guam. The company’s dd's DISCOUNTS stores operate in 157 locations in 15 states.
The company’s fourth quarter revenues of $3,032.7 million were backed by positive response from value-focused domestic customers toward the company’s extensive collection of brand bargains.
This year’s expected earnings growth rate for this Zacks Rank #2 (Buy) stock is 9.4%. The stocks’ earnings estimates for the current year were revised 0.8% upward over the last two months. It has a Zacks Industry Rank in the top 38%.
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