As the primary foreign exchange advisor to City National’s Technology Banking division, I get a front row seat to see how geopolitics, macroeconomics and banking come together. We recently got a reminder of how important the international landscape is to our clients’ business.
No one can hear the news about Apple’s dealings with the EU tax authorities, and see the sheer numbers involved, without realizing how important the rest of the world is to the U.S. tech sector and why having international strategies in place is so important.
In the second quarter of this year, the average S&P 500 company earned 31 percent of its revenue from sources outside of the U.S. For the tech industry that number is 59 percent – nearly double the S&P 500 average.
Honestly that is not really surprising, due to its international production cycle and the heavy demand for technology from all over the world. But if we assume that fact will persist in the coming years, it makes the art of currency forecasting even more important for tech companies than for many other firms.
City National Foreign Exchange has released its latest three- and six-month forecasts, with our continued expectations that the U.S. dollar will appreciate in value into the end of the year. As is usually the case, relative interest-rate differentials and the market expectations for those differentials are the primary drivers of currency values.
In Continental Europe, the U.K. and Japan, monetary yields are extremely low and often negative. In the U.S., Federal Reserve Chair Janet Yellen’s Jackson Hole speech last week put new life into the possibility of a Fed rate hike this year. Our colleagues at City National Rochdale expect the rate hike to occur in December.
My View: If this trend continues, add a stronger dollar to the list of issues that tech companies will need to seriously address.
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