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How a strong dollar can be a corporate weakness

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DuPont, Procter & Gamble and Pfizer are among the multinational corporations blaming the strong dollar for earnings that missed analysts’ expectations this quarter. But the strong dollar isn’t a weakness for the reason you might expect. 

The dollar has spiked rapidly and broadly because the U.S. economy is doing relatively well, says Sameer Samana, global strategist at Wells Fargo.

How the U.S. dollar compares to the British pound, euro and Japanese yen.

That has hurt multinational corporations not necessarily because this makes exports more expensive but because of what Steven Englander, head of G10 foreign exchange strategy at Citigroup, calls the “translation effect.”

Mauro Guillén, a professor of international management at the Wharton School, says this is when profits abroad are “lost in translation.” They are reduced by the exchange rate when they are repatriated back to the United States. It may hurt a company’s stock price, Guillén says, but it’s not a threat to the broader economy.

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