The US healthcare giant Pfizer is being criticised for delaying the release of their FDA approved hepatitis C drug, Harvoni, as the US dollar was a bit shaky. Unfortunately the big question is whether this will translate into a negative impact on the company’s revenues and profits.
The US dollar has been on a roller coaster during the past few months. While investors were elated when the Federal Reserve cut interest rates by a further two-thirds, but the currency was also buffeted when Europe started to spiral out of control. Both sides of the Atlantic got off well after the “referendum” vote to leave the European Union but it looks as though the dollar will soon sink again.
The weak American dollar is just one of the many issues that are threatening to plunge global equity markets and the financial sector into further turmoil. We’ve only seen the beginning of it. If we are to be lucky, the dollar may be able to weather the storm for a while but a bout of inflation is on the cards.
This is due to the ongoing threat posed by the EU, as well as Britain’s impending exit from the European Union. It looks as though there may be a lot more to come in the months ahead.
It appears that the dollar will not survive another round of “printing”. Well, unless US investors realise how really small the global market has become.
As for the dollar, some traders have jumped on the opportunity to buy the greenback at an all-time low. The central banks are now buying more US dollars than they were buying for almost three years.
Investors around the world are expecting that the weakness of the dollar will continue through the rest of the year. Indeed, it looks as though the federal Reserve may just cut back on its aggressive buying of treasuries or make other announcements that would affect the dollar to some degree.
Of course, we’ve already seen some indication of this move when the major central banks announced that they were putting money into their stock markets. So, that’s good news for shares are enjoying their best month ever on the back of this.
However, one thing to bear in mind here is that the stronger the US dollar is the less capital flows into the stock markets. If the dollar strengthens, then less money flows into the stock markets, leading to weaker share prices.
Yes, it’s just like buying food in a tin. If you pour boiling water into a tin of beans and watch the colour of the tin improve, it won’t last long.
In fact, it’s more likely that the dollar weakens over the next few months. Then, everyone will come to the realization that the Federal Reserve is already pricing in some form of rate hike and will continue its rate hikes until the unemployment rate rises above five percent.
In the meantime, the weakened dollar will allow stocks to rise to new highs, while bonds will reflect lower yields. The end result will be a significant increase in equity prices as well as a moderate appreciation in the value of the dollar.