When people speak of a weak or strong dollar, they're referring to the U.S. dollar's value against major world currencies. The dollar's relative weakness or strength influences trade, making U.S. goods more or less expensive abroad. It affects consumer purchasing power, both domestically and internationally. A fluctuating dollar value can significantly impact businesses, investments, and travel costs.

A strong dollar means U.S. exports cost more for foreign buyers. A weak dollar means imports cost more for American consumers to buy.

Comparing the Strong and Weak U.S. Dollar

A strong dollar translates to an exchange rate that is historically high relative to another currency.

For example, if theexchange rate between the U.S. and Canada hovered between 0.70 CAD/USD and 0.83 CAD/USD during the five years that ended in late December 2023. If the exchange rate was at 0.82 CAD/USD, the American dollar would be considered weak and the Canadian dollar strong.

In real life, that would mean Canadian consumers could buy American imports for a little less money while Canadian products would be a bit costlier for American consumers.

Business and Investment Impact of a Strong U.S. Dollar

A weak dollar is not necessarily bad, nor is a strong dollar necessarily good. A weak dollar makes imported goods more expensive for American consumers to buy, but it makes American goods a relative bargain abroad. American companies with a global reach can do well when the dollar is weak while losing some sales when the dollar is strong.

Travelers are particularly affected by the current value of their home currencies. If an American travels to London when the dollar is strong, their dollars will stretch farther. Companies in the travel industry will see the impact. Package tours become more or less affordable as the value of the dollar fluctuates.

Dual Perspectives on Currency Valuations

Currency valuations are always viewed as a comparison between two currencies. The U.S. dollar may be strong only because the British pound is weak, or vice versa. For example, the British pound fell to $1.14, its lowest level in 37 years, on Sept. 7, 2022.

The crisis occurred in the U.K., not in the U.S. Soaring inflation and economic uncertainty following the Brexit vote led to a loss in confidence in the pound.

How Multinational Companies Are Affected by U.S. Dollar Strength

A strong U.S. dollar can be bad for multinational companies because it makes American goods more expensive overseas. If the U.S. dollar continues to appreciate, it could have a negative long-term impact because those overseas consumers will begin to turn away from American brands. 

The sectors impacted most by a strong dollar are technology, energy, and basic materials, but the large-cap names that have and could continue to see their earnings take a hit go well beyond these three sectors.

Some of the names that are vulnerable to the effects of a strong U.S. dollar include:

• General Motors Co. (GM)
• 3M Company (MMM)
• Procter & Gamble Co. (PG)
• Estée Lauder Companies Inc. (EL)
• International Business Machines Corp. (IBM)
• Chevron Corp. (CVX)
• DuPont de Nemours Inc. (DD)
• United Technologies Corp. (UTX)
• Accenture Plc (ACN)
• Oracle Corp. (ORCL)

U.S. Companies Shielded From Dollar Fluctuations

On the other end of the spectrum, domestic companies are not negatively impacted by a strengthening U.S. dollar.

Investors interested in a long-term stock selection that is relatively safe from currency fluctuations might consider companies like these for further analysis:

• Alaska Air Group, Inc. (ALK)
• Dollar General Corp. (DG)
• The TJX Companies, Inc. (TJX)
• CVS Health Corp. (CVS)
• The Allstate Corp. (ALL)
• UnitedHealth Group Inc. (UNH)

The Bottom Line

The strength or weakness of the U.S. dollar directly affects foreign exchange traders, travelers, consumers in the U.S. and abroad, and multinational companies. A historicallystrong U.S. dollar may cause stock investors to look into companies that make profits mostly or entirely in their home countries.