The dollar's surge — it hit a 12-year high against the euro Monday and a seven-year peak against the yen last week — will cause more trouble for corporate earnings and the economy if it doesn't fall back, says Tom Lee, founder of Fundstrat Global Advisors.
Numerous U.S. companies have complained that the greenback's strength is depressing earnings. It curbs exports by making them more expensive in foreign currency terms and lessens the value of U.S. corporate revenue earned overseas when it's converted back to dollars.
By dampening exports and lowering inflation, a stronger dollar also damages the economy.
"If the dollar stays at this level, it's going to be a headwind for earnings for the rest of the year, because we know there's a translation effect on inflation and GDP," Lee tells CNBC
"One of the things I think is uncertain is where the dollar [will be] six months from now. If investors think it will be stronger, there is going to be a headwind."
Currency wars are raging around the world, as central banks outside the Federal Reserve seek to devalue their currencies with lower interest rates and thus spark exports to boost their stagnant economies.
"The world’s leading economies have reduced themselves to blatantly competing less on the quality of what they produce than on the speed with which they can depreciate their currencies against one another," he says.
"The lessons of history are that such situations are prone to escalate into rancor and, ultimately, conflict."
Halligan spells out some dire ramifications.
"The longer profligate eurozone governments are able to ramp up borrowing, the more likely monetary union is dramatically to implode. And the further share prices are pumped up by QE [quantitative easing] and other monetary mutations, the more vulnerable global stock markets are to crash."
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