Currency Pain Eases for Corporates – But is Still High

An easing dollar has helped reduce the bottom-line impact on corporate earnings, according to the latest quarterly Currency Impact Report from Kyriba, however companies are still suffering, with the FX impacts remaining at historically high levels.

The latest report, for Q1 2023, finds that the 1,200 corporations surveyed experienced $23.20 billion in total impacts to earnings from currency volatility. The combined pool of corporations reported $22.52 billion in FX-related headwinds and $0.68 billion in tailwinds in the first quarter of 2023, with North American companies reporting $21.24 billion in headwinds, and European companies $1.28 billion in headwinds.

The total impact is the fourth highest recorded by Kyriba, however the silver lining is the top three impacts were all registered in the last year, therefore this represents a further drift from the highs of Q3 2022. Total quantified currency impacts fell $9 billion since the last quarter, and for the first time since 2021, the average negative impact to corporations also dropped.

“While the downward trend is substantial, we are by no means out of the woods regarding a very complicated and volatile currency market fuelled in large part by continued inflationary pressures, interest rate moves and a general sense of uncertainty from a variety of geo-political events,” says Andy Gage, SVP of FX solutions and advisory services at Kyriba. “This quarter’s report shows EPS impact reported by North American companies was $0.06, six times greater than the industry standard MBO of less than $0.01 EPS impact. For the rest of 2023, CFOs need to gain accurate and faster visibility to their currency risk and underlying exposures to eliminate EPS at risk.”

Publicly-traded North American companies indicated the euro as the most impactful currency, with 33.3% of companies referencing it as impacting revenues; the Canadian dollar was second at 26.7%, and the Chinese yuan was third with 20% of North American companies identifying it as impactful.

The euro was cited as one of the most impactful currencies by publicly traded European companies on earnings calls.

“We see CFOs who can quantify the impact of currency volatility on their financial statements and cash flow in a much better position to reduce preventable FX losses,” says Gage. “Finance teams who have successfully managed FX impacts are turning to data and analytics to reduce their cost of hedging and deliver improved predictability to support earnings, revenue, and cash flow guidance.”