Dollar's gain is Big Tech's pain

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Dollar' s gain Big Tech' s pain

Illustration: Maura Losch/Axios Big technology companies are , as the sector becomes an unlikely victim of foreign exchange volatility. Why it matters: In normal times, car companies and other are the most sensitive to dollar fluctuations. Needless to say, with interest rates soaring alongside inflation expectations – even as growth falters – .The Federal Reserve’s offensive against spiking inflation is pushing up rates. That's boosting the greenback’s value in major markets like Europe, where a strong greenback has railroaded . Driving the news: During the Q2 reporting season, Netflix, Google, IBM, Microsoft, Apple and citing the . Particularly against the euro and yen, the U.S. currency is creating what the as a “currency shock [that’s] muddled an earnings period that was being closely studied for signs of a weakening global economy.” It’s unusual to see big tech (certainly not this many companies at the same time) cite currency volatility as an issue. Most of them sell software-based services, rather than physical goods like cars or . What they’re saying: Still, foreign exchange volatility is “a headwind for Big Tech with 35% to 40% of sales in Europe, and strong dollar a 400 [basis point] top-line headwind,” veteran tech analyst Dan Ives tells Axios in an email.“As they sell in local currency this will be a negative theme over the coming year with a strong greenback,” he added. Yes, but: Traditionally, big companies employ to guard against FX risk. U.S. manufacturers and big auto companies, where pleas for government intervention to have often fallen on deaf ears, know this firsthand. What we’re watching: The Fed’s next policy moves. If the current economic angst gives way to a deep recession, the central bank may reverse course. That would narrow the interest rate differential boosting the greenback.

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