The days of dollar strength appear to be over now that the French election has sounded the all clear on the euro, creating a potential big boost for profits of global-oriented U.S. companies in the coming months.
Three factors "are conspiring for a 'honeymoon period' for overseas earnings," Sean Darby, chief global equity strategist at Jefferies, said in a Monday note.
1. The dollar is weakening as Fed rate hike assumptions are pushed out and as political uncertainty in the U.K. and Europe recedes.
2. Earnings revisions in Europe and parts of EM are accelerating faster than the
3. Concerns over protectionism are fading at the same time as global
trade is rebounding.
A key driver of dollar weakness is renewed strength in the euro, which on Sunday hit its highest level against the greenback since Nov. 10 after a market-friendly result from the first round of the French election. Centrist presidential candidate Emmanuel Macron took nearly 24 percent of the vote and far-right candidate Marine Le Pen took 21.5 percent. Macron is expected to win the second round on May 7 by a wide margin.
"It's going to be hard to hold it down now that the French election is over and the data is OK," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie. "I don't think we're going to end the year much different from here but in the near term there's definitely some momentum."