Do Forex prices underlie price fluctuations in U.S. equities?

kmiklas

kmiklas

I've been watching how the price of the Spider and some other big companies (MSFT, INTC, etc.) wander around during the day. The light bulb just went on for me, and I want to see what you think.

I have noticed that as the USD loses against the EUR or the GBP, the price of US equities tend to rise; as the USD gains, the price in USD falls. This would make sense; as the U.S. dollar loses against other currencies, it would have to increase in price; and, as the dollar becomes stronger, the price would fall?

- Example: A beer costs $5, and 4GBP. The dollar suddenly loses against the GPB. The resulting price of a said beer stays at 4GBP, but now costs $6USD, because the USD currency has lost value.

How much of an effect to relative currency values have on U.S. equities? Are these random walks in the SPY and other Diamond and S&P equities being pushed around by currency changes? If so, to what extent?

Thx, Keith :^)
 
kmiklas said:
Are these random walks in the SPY and other Diamond and S&P equities being pushed around by currency changes? If so, to what extent?
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To the extent that earnings in foreign currencies are relevant to various businesses.

Over here (UK), when the GB Pound declines against other currencies (as it has, recently), the FTSE-100 stock index typically rises, because many of the 100 companies comprising that index earn overseas, so their income in their domestic currency effectively rises.
 
Xela said:
To the extent that earnings in foreign currencies are relevant to various businesses.

Over here (UK), when the GB Pound declines against other currencies (as it has, recently), the FTSE-100 stock index typically rises, because many of the 100 companies comprising that index earn overseas, so their income in their domestic currency effectively rises.
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Good comment! So, if I understand you correctly, only companies that do business in other countries will be affected by currency fluctuations of said country.

Example: The Amalgamated Banking Corporation (ABC) only does business in the USA and Australia. They would be affected by currency fluctuations between the USD and AUD, but a EUR:USD or GBP:USD fluctuation would not move the needle.
 
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