If a multi-national company does business overseas they get paid in the overseas currency.  For example, if Boeing sells airplanes in Europe it will get paid in Euro’s (EU).  If the USD declines in value versus the Euro, Boeing will be able to purchase more USD’s with its Euro’s when it repatriates the money back into USD’s.  The EUR/USD exchange rate began 2017 at 1.04 with a strong U.S. dollar, meaning for every 1 euro exchanged, $1.04 would be your return.  A year later in February 2018, the EUR/USD exchange rate reached an alarming high of 1.25, gaining 20.2%. In other words, a single euro would purchase $1.25 in U.S. currency, the U.S. Dollar had weakened.  

For most of 2017 the USD exchange rate was a tailwind for U.S. multi-national companies, adding to their earnings per share (EPS).  Since reaching a high of 1.25 EUR/USD at the beginning of 2018, the exchange rate has declined to its current level of 1.17.  One Euro now only buys $1.17 vs. $1.25 at the beginning of the year.  The tailwind is turning into a potential headwind as higher interest rates in the U.S. compared to those in Europe attracts capital into the USD.  In foreign exchange markets, one of the key factors of a countries exchange rate is the relative yield on its bonds.  Currently the yield on 10-year German Bunds is 0.56%, which is considerably lower than the U.S. Treasury Note yield of 3.06%.   

If interest rates in the US outpace the rate of advance in German rates, the USD will continue to appreciate.  That is a reason why rising rates in the U.S. has the equity markets concerned.  Not only do rising rates increase borrowing cost they can also increase the USD exchange rate.  This may be one reason the Russell 2000 has been outpacing the S&P 500.  Year to date the Russell 2000 is up 6.5% compared to the S&P 500 return of 2.32%. Keep in mind that the Russell 2000 is composed of small-cap companies that mainly do business in the U.S. and have little foreign currency exposure.            

Effects the value of a strong U.S. dollar may have on consumers of goods and services include:

• A strong USD will make U.S. goods and services more expensive for foreigners to purchase, giving foreign companies a competitive price advantage. 
• U.S. consumers will be afforded the benefit of being able to purchase more foreign goods and services for the value of their dollar, which in turn will help keep inflation in check.