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Technology sector and S&P 500 index are sensitive to currency fluctuations
Earlier in the series, we learned about the factors that make Microsoft (MSFT) more vulnerable to currency fluctuations. A strong US dollar is a concern not only for the technology sector but for the majority of the companies in the S&P 500 (IVV), as they derive approximately half of their overall revenue from outside the US. If we consider Credit Suisse estimates, S&P 500 companies’ overseas cash has crossed $3 trillion.
Fed’s cautious approach and global growth concerns caused US dollar to sink to 9-month lows
After having a good rally in late 2014 and 2015, the US dollar (UUP) also started 2016 on a positive note. However, since February 2016, the US dollar has started to slide against major currencies. The above chart shows the performance of the PowerShares ETF, which follows the US dollar’s price movements.
On April 11, 2016, the US dollar fell to its 9-month lows. On April 7, 2016, the dollar fell to 107.7 against the Japanese yen (DXJ), a 17-month low. Since the beginning of 2016, the US dollar has lost more than 10% of its value against the yen.
The Federal Reserve’s decision on March 16, 2016, to keep the interest rate steady between 0.25% and 0.5% represented a less hawkish monetary outlook for 2016. The Fed will likely raise the interest rates two times in 2016 in contrast with the previous estimates of four times. The Federal Reserve’s cautious move weakened the US dollar.
The weaker US dollar supported the movement of the technology sector in March 2016. Apple (AAPL), Microsoft, Facebook (FB), and Intel (INTC) stocks rose 13.3%, 8.2%, 7.3%, and 10.5%, respectively, in March.
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