As the global economy has weakened, a forcefully stronger U.S. dollar has emerged.
The fallout from the greenback's appreciation is reverberating around the world. A more valuable dollar translates into cheaper oil and the imports lining U.S. store shelves. That represents both a boon for American consumers and a hardship for major oil producers such as Russia, Nigeria and Saudi Arabia.
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Major companies such as Nike, Costco and ConAgra Foods warn that the stronger dollar is cutting into their overseas revenue — a trend that could pressure some of the biggest brand names in the stock market.
The combination of falling oil prices and a rising dollar has even led some economists to suggest that average U.S. consumer inflation could approach zero early this year. If it does, the Federal Reserve might have to alter its calculations about when to raise a key interest rate for the first time since the financial crisis erupted in 2008.
The dollar's rise has been fueled by a dim outlook for the global economy. Europe is muddling through a slowdown, and accordingly, the dollar has appreciated roughly 12 percent against the euro in the past year.
Japan is mired in a recession, while Brazil just crawled out of one. The Japanese yen has shed about 16 percent of its value against the dollar in the past 12 months, the Brazilian real about 13 percent. In Russia, the ruble's collapse has left homeowners struggling to repay their dollar-denominated mortgages.
All of that spills over into other markets. Investors seeking to escape the turmoil crowded into U.S. Treasurys on Tuesday, causing the yield on the 10-year note to dip below 2 percent.
Crude oil prices fell nearly 5 percent to under $48 a barrel. And the Standard & Poor's 500 stock index declined more than 1 percent amid fears about the global economy.
Here are five economic sectors that could be reshaped by a stronger dollar and the global sluggishness:
— OIL PRICES
Crude oil prices have more than halved from $107 a barrel since June. The global appetite for petroleum has dried up because of the global economic slowdown, which extends to commodity-hungry nations such as China. Meanwhile, oil rigs in countries such as Saudi Arabia, which are competing for market share, are pumping out oil anyway. As a rule, continued supply and falling demand cause lower prices.
But the U.S. dollar also plays into this trend. Financial markets price oil in dollars. This gives petroleum a uniquely inverse relationship with the almighty buck. When oil prices fall, the U.S. dollar often rises against other currencies. As a result, Americans are reaping more of the benefits at the gasoline pump from falling oil prices than are the German, French or Portuguese consumers who buy their gas in euros.
— CONSUMER SPENDING
Gasoline is a must in most family budgets. So when prices at the pump fall — and they're down a third over the past year nationwide to $2.19 a gallon, according to AAA — people can direct that spending elsewhere. They can splurge on a winter jacket, an SUV or an evening out at a restaurant.
But that increased spending usually lags.
"It takes time for people to realize the extent to which their finances have been improved by the drop in gas prices and for them to be convinced the gain will last, and finally for the money to be spent," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
U.S. consumer spending rose 3.2 percent during the July-September quarter of 2014. Shepherdson forecasts that it will top 4 percent in the first quarter of 2015 because of the boost from cheaper gas.
When consumer spending surges, higher inflation usually follows. But not necessarily this time.
U.S. consumer prices will likely be flat in 2015 — unchanged on average at 0 percent, predicts Kevin Logan, chief U.S. economist at HSBC Securities. This would be due largely to falling oil prices, with an assist from a stronger dollar making foreign-made imports cheaper for American shoppers and businesses. The rising exchange rate causes denim from Osaka, Japan, that was originally priced in yen to become more of a bargain at U.S. boutiques. Prices have already fallen for vehicle imports.
— THE FEDERAL RESERVE
Fed Chair Janet Yellen has hinted that the U.S. central bank may lift the federal funds rate from its near-zero level at some point in 2015. That rate has been at near-zero since the financial crisis in 2008 and ensuing global recession put the Fed on an emergency footing. The Fed usually would raise the rate as jobs return and inflationary pressures increase. The unemployment rate has plunged to 5.8 percent from 6.7 percent at the start of 2014. Yet inflation appears to be moving further below the Fed's 2 percent target.
"It creates a little bit of a quandary," said HSBC's Logan.
He thinks the Fed won't make a move to raise this key rate until September, somewhat later than other analysts who have been predicting June.
Investors seem to think the Fed will be slow to lift the rate over time, as the 10-year U.S. Treasury has slid beneath 2 percent for the first time in three months. This is also likely a sign of international investors seeking a haven with a reasonable return. The U.S. dollar and government debt provide this shelter. Germany is staring down a financial mess across the euro zone, but a German can earn a 1.94 percent yield on a 10-year U.S. Treasury compared with just a 0.44 percent yield on 10-year German bond.
This causes more international investors to buy 10-year U.S. Treasurys, further lowering the yield. That then translates into lower mortgage rates for U.S. homebuyers.
A stronger dollar means U.S. exports are more expensive abroad, which could affect the earnings of companies on the stock market. About a third of sales for the companies in the S&P 500 come from outside North America, said John Butters, an analyst for the data firm FactSet.
Some companies are already saying the stronger dollar could squeeze their foreign sales.
Nike described the rising dollar as a "headwind" despite its efforts to hedge the currency market. The consulting firm Accenture said its net revenue increased 10 percent in "local currency" during the previous quarter but only by 7 percent in U.S. dollars. It means the exchange rate subtracted from their growth by 3 percentage points. Cheerios-maker General Mills said currency differences lowered its sales by 2 percentage points, while Costco said the stronger dollar lowered its earnings in Canada and Japan.