Dollar Bull Run Hitting Corporate Bottom Lines More Than Ever – Kyriba

The latest Kyriba Currency Impact Report finds that companies saw almost $47 billion in headwinds in Q3 2022, a period dominated by the US dollars run to multi-year highs. At the same time, there was a more than $17 billion impact from tailwinds.

The quarterly report details the impacts of FX exposures among 1,200 multinational companies based in North America and Europe with at least 15 percent of their revenue coming from overseas. North American companies reported $43.15 billion in headwinds, a 26.6% increase over the previous quarter, while European companies reported a 33.3% increase in negative currency impacts, with companies reporting in FX-related headwinds.

The good news for these companies is that in Q4 and early 2023, the dollar has given up a substantial portion of these gains.

The average earnings per share (EPS) impact reported by North American companies in Q3 2022 was $0.05, while publicly traded North American companies reported only $0.26 billion in tailwinds. These firms 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 Russian rouble was third with 20% of North American companies identifying it as impactful. The euro was the currency most mentioned as impactful by European companies on earnings calls, followed by the Swedish krona and the US dollar.

“We have seen currency exchange and interest rates move more in the past year than they have in the past decade and we expect more volatility in 2023,” says Wolfgang Koester, chief evangelist of Kyriba. “FX volatility is costing corporations record amounts as we saw this past quarter with headwinds and tailwinds totalling $64 billion, a clear signal for CFOs to examine their FX risk management practices.

“CFOs and Treasurers must take a modern approach to address these unpredictable shifts in the market which make earnings season more challenging as certainty around future cash flows is less clear,” he adds. ““More than ever, industry analysts are asking questions during earnings calls about how CFOs are protecting shareholder value and scrutinising FX-driven vulnerabilities to financial results. Large, unexplained impacts to earnings indicate an opportunity to improve corporate FX risk management through capturing the full spectrum of FX exposures, mitigating EPS at risk, and reducing hedging costs.”

Koester’s views are echoed by Eric Huttman, CEO of trading platform MilltechFX. “The dollar rally wreaked havoc for many North American firms in 2022 and Kyriba’s latest currency impact report shows that it significantly impacted their bottom lines,” he observes. “They have enjoyed some respite in recent weeks with the dollar dropping 10% from its 20-year high in September, but it’s vital they don’t get complacent. As we’ve seen over the past year, the trajectory of the value of currencies can change at the drop of a hat.

“In parallel with the weakening dollar, the pound and euro have started to recover from record lows in 2022, meaning European and North American corporates must continue to prioritise FX risk management for the foreseeable future to protect their business from currency volatility,” Huttman concludes.