Microsoft drops after cutting quarterly guidance on 'unfavorable' currency moves, highlighting headwinds from dollar strength

• Microsoft shares fell Thursday after the company cut its Q4 revenue and earnings forecast.
• The software maker cited "unfavorable" foreign exchange moves as reason for the lowered outlook.

Microsoft shares fell Thursday after the software heavyweight slashed its financial guidance because of foreign currency fluctuations, a move that comes as multinational companies flag this year's ascent of the dollar to 20-year highs.

The maker of Office, Excel and other software products in a PowerPoint presentation cited the "unfavorable impact of foreign exchange rate movement" as the reason for revising its fourth-quarter revenue and earnings outlook.

The stock fell as much as 4% to $261.60, a one-week low, a decline that weighed on the Dow Jones Industrial Average.

Microsoft now sees fourth-quarter earnings of $2.24-$2.32 a share. It had previously expected $2.38-$2.35. It expects revenue of $51.94 billion to $52.74 billion, down from its previous projection of $52.40 billion to $53.20 billion.

The warning arrived as the dollar recently hit a 20-year high against major rivals as gauged by the widely watched US Dollar Index. The greenback has marched higher as the Federal Reserve has signaled it will aggressively raise interest rates to combat hot inflation. The dollar index as of Thursday was up 6% for 2022 and up 13% over the past 12 months.

The dollar's relative strength can hurt US companies doing business overseas by making their products more expensive for holders of other currencies to purchase and lowering the value of their international sales when those are converted back to dollars. Apple, Pfizer, Facebook parent Meta Platforms, Procter & Gamble, and other large corporations have told investors their financial results may be dented by foreign exchange fluctuations.

S&P 500 companies generate 41% of revenues outside the US, according to FactSet.

Microsoft shares this year had dropped by 19% through Wednesday's close, losing ground alongside a broader selloff in tech stocks that dragged the Nasdaq Composite into a bear market.

The US Dollar Index measures the greenback's performance against the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc.

The Fed is expected to deliver a rate hike of 50 basis points at its June 14-15 meeting after raising rates by 75 basis points since March.