The Federal Reserve’s recent aggressive rate cut could spell more trouble for the greenback, but how will US business and CFOs react?

American businesses had become accustomed to a powerful dollar – for better or for worse. The strength of the US currency reached its apogee in late 2022, after a roughly 30 per cent appreciation over six major peers in the prior decade (see chart below).

The dollar has retreated from this peak, but as recently as May, a range of top US multinationals – including Apple and Procter & Gamble – were warning investors that the potency of the greenback was proving a drag on earnings, weighing on the domestic value of revenue earned overseas.

In recent months, however, there are signs that the muscle-bound US currency might be suffering from fatigue. The DXY dollar index has fallen around five per cent since its recent peak in late June, losing ground against the Euro, Japanese yen, British pound, Canadian dollar, Swiss franc and Swedish krona.

The move raises several key questions for finance professionals at US companies with exposure to international markets. Is the US dollar’s fall likely to continue? And, if so, what does this mean for business?

Trending lower

On the first question, predicting moves in foreign exchange markets is far from simple.

Currencies can be swayed by a bewildering range of forces, including central bank policy, economic growth, inflation, political shifts, patterns of trade, commodity prices and international mergers and acquisitions – to name but a few.

With that caveat in mind, there are several key reasons to suspect the dollar might continue to trend lower in the coming year.

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A key source of the dollar’s potency in recent years has been US interest rates. The Federal Reserve kept rates at the highest level of all leading nations – reflecting the strength of the US economy. Now this period of US exceptionalism appears to be coming to an end.

On 18 September, the Fed cut rates by 50 basis points – a larger single step than taken by peers such as the European Central Bank, Swiss National Bank or Bank of England.

And despite starting late, the Fed now looks set to make up for lost ground.

The median forecast from the Fed’s top officials is for 1.5 percentage points of rate reductions by the end of 2025. If this proves accurate, most economists believe this will narrow the generous interest-rate premium offered by the US dollar over other leading currencies – reducing the greenback’s appeal for investors.

UBS, for example, is expecting the dollar to lose further ground against its major peers.

What this means for US companies, and their top financial officers, is a matter of perspective.

For many of America’s top multinationals, a sigh of relief is in order. A broad rule of thumb is that such firms tend to derive a larger share of their revenue from overseas. America’s largest publicly traded companies, represented by the Russell 1000, get close to