Key Highlights

● The dollar stood near its strongest level in 19 months on Thursday.

● The dollar index was around 102.8 to 103.0.

● The Japanese yen traded near 160 per dollar.

● A stronger dollar is a headwind for multinationals.

The US dollar has been climbing steadily, and by Thursday morning it stood near its strongest level in 19 months. The dollar index, which measures the greenback against a basket of major currencies, was around 102.8 to 103.0, according to a market report on Substack, while the Japanese yen traded near 160 per dollar.

For US companies that sell heavily overseas, that strength can be a headwind. When the dollar rises, Revenue earned in euros, yen or other currencies translates into fewer dollars, and American goods become more expensive for foreign buyers.

Why the dollar is rising

The main driver is the outlook for US interest rates. Tuesday's October Consumer Price Index rose 0.4% on the month, with core up 0.3%, and futures now imply about a 90% chance of a quarter-point Fed hike at the December 8-9 meeting, according to CME FedWatch. Goldman Sachs and UBS expect hikes in December and March.

Higher expected US rates make dollar-denominated Assets more attractive to global investors. The 10-year Treasury Yield was near 5% early Thursday, and the 2-year was around 4.77%. Those yields draw Capital into the US and support the currency.

Geopolitics also plays a role. Oil prices remain elevated amid tensions involving Iran, with West Texas Intermediate around $86 and Brent around $92 per barrel Thursday morning. In uncertain times, investors often seek the relative safety of the dollar.

Who feels the pinch

Large multinational companies are most exposed. Technology giants, consumer brands, industrial manufacturers and pharmaceutical companies often generate a substantial share of revenue abroad. A stronger dollar can trim reported sales and profits when results are converted back into dollars, even if underlying Demand is unchanged.

The effect typically shows up in Earnings reports and guidance. Companies frequently cite currency as a Factor when they adjust outlooks, and analysts often separate constant-currency growth from reported growth to account for it. Upcoming reports, including Cisco (NASDAQ:CSCO) after the bell on Thursday and Walmart (NASDAQ:WMT) on November 19, will offer clues about how executives view currency effects.

Commodities can be pressured too, because many are priced in dollars. Gold was trading around $3,951 to $3,963 an ounce Thursday, down about 1%, and back below $4,000, after final Wednesday at $4,000.50.

Still, a strong dollar is not bad for everyone. Companies that Import goods or raw materials can benefit from cheaper costs, and domestically focused businesses, such as many small caps and regional banks, are less exposed to currency translation. The Russell 2000, heavier in domestic companies, rose 0.88% on Wednesday.

US consumers can also gain from cheaper imports, which may help ease Inflation over time. That could, in turn, reduce pressure on the Fed if it materializes.

Currency effects also tend to play out over quarters rather than days. Many multinationals hedge part of their exposure, which softens the immediate hit.

What to Watch Next on Dollar at 19-Month High

Thursday's data and Fed commentary could move the dollar. Jobless claims come at 8:30 a.m. ET, followed by speeches from five Fed officials, including Chicago Fed President Austan Goolsbee, who called the October CPI "borderline disturbing," and New York Fed President John Williams at 6:30 p.m. ET. Friday's producer price index, expected to rise 0.4% on the month, is the next inflation test.

Markets are also watching the yen near 160 per dollar, a level that could prompt a response from Japanese authorities and cause sharp swings in currency markets.