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magazineCurrency movements imply potential weakness in many large cap stocks
There has been considerable volatility in currency markets of late with the pound shooting above $1.42 for the first time since the Brexit vote in June 2016. It has since slipped back through this level on renewed fears about the course of the UK’s exit from the European Union.
Unless you are a currency trader it isn’t necessary to monitor daily movements in the foreign exchange markets. However, it is important to keep tabs on the wider trend which shows significant US dollar weakness against both the pound and euro since March 2017.
This has significant implications for the profit of UK companies with substantial US sales. Many of these companies would have seen their 2016 results boosted by sterling weakness but will have seen that supportive trend steadily reverse over the last 12 months. As such they may have found it difficult to match their 2016 financial performance in 2017.
If earnings disappoint due to a currency impact in the coming full year results season, we may see some share price weakness. The accompanying list from AJ Bell shows companies which derive a lot of their revenue stateside and which could be vulnerable to dollar weakness. (TS)
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