Dollar bucks downward economic trends

U.S. companies that sell lots of product abroad will suffer as their goods become more expensive, crippling the purchasing power of overseas buyers. And as the economic downturn ripples across the globe, demand for those same U.S. goods will fall as international customers cut back.

“This is a pretty scary situation for U.S. corporations,” said David Woo, global head of foreign exchange strategy for Barclays Capital in London.

“The most important reason the U.S. economy didn’t go into a recession before was because exports were cheaper and demand for U.S. goods went up,” Woo said. “Now you have emerging markets deteriorating and not only their purchasing power for U.S. goods declining, but the underlying demand for those goods falling as well.”

If the dollar keeps rising rapidly, “I think the U.S. economy will suffer greatly,” he added.

U.S. companies are already bracing for dollar-related pain.

3M Co., which does big business overseas selling Post-it Notes, Scotch tape and other products, expects the stronger dollar will result in a whopping 10 percent hit on next quarter’s earnings, forcing the conglomerate to revise its 2008 earnings forecast.

“Exchange rates have moved quite a bit,” Patrick Campbell, 3M’s senior vice president and chief financial officer, told analysts last week after reporting the company’s third-quarter earnings. “The dollar-euro combination and some of the other currencies that have weakened quite a bit ... has impacted our thinking for the fourth quarter.”

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Experts say it’s too early to how long the dollar’s run will last.

If the Fed boosts the supply of money by bringing interest rates all the way down to zero, that could eventually weigh down the greenback. Moreover, many experts say the government will have to print reams of money to help pay for the $700 billion financial rescue plan, diminishing the dollar’s value over time.

But if the fears in the global economy persist, the dollar could continue looking like a safe bet, analysts say.

“As long as the stock market continues to be volatile, we’re going to see the dollar rising,” said Ashraf Laidi, chief foreign exchange strategist at CMC Markets US in New York.

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