The strength of the Dollar this year has had several drivers. It has been a haven amid widespread risk aversion, while the relatively speedy pace of rate rises has pushed it higher against Sterling and the Euro. The Federal Reserve has talked tougher than other central banks about the need to curb inflation. Also, the US continues to issue a lot of government debt, which has helped support its currency. 

The Dollar has lost around 4% in November against a basket of six currencies, its biggest monthly fall in over a decade. The catalyst has been signs of cooling inflation data as strength in the jobs and housing markets starts to ebb. The shift could have significant implications for company earnings over the next few months. 

It will be good news for the US’s largest exporters. Apple, for example, reported resilient earnings for its fiscal fourth quarter, but CEO Tim Cook said the company Dollar strength had knocked several percentage points off its revenue growth and hurt international sales. It has been a tailwind for the technology sector more and any reversal may give a boost to the flagging US giants. 

For UK investors, it may dent the bumper income pay-outs from the UK’s largest companies. FTSE 100 companies have had a tailwind for much of the year from their overseas earnings. Dollar revenues converted back to sterling have flattered earnings and dividends. This has been a marginal boost for the UK stock market at a difficult moment. 

There is also likely to be some impact on inflation. The strength in the Dollar has kept US inflation relatively low, while raising prices for countries around the world importing US goods. A reversal in the Dollar’s strength may add to US inflationary pressures, while diminishing them elsewhere. In theory this should give UK and European policymakers more leeway but given that most central banks around the world take their leadership from the Federal Reserve, it may not prove the advantage it could be. 

Either way, the shift in the Dollar is another element contributing to the feeling that markets are at a turning point. After a year where markets have been adjusting to the shift in Federal Reserve policy, it is a sign that this shift is now largely priced into markets.