US Corporates Suffer as Dollar Soars: More Pain to Come?

The latest quarterly Currency Impact Report from Kyriba finds that US corporations saw a 390% increase in currency headwinds in the last quarter of 2021, compared to the previous quarter. Perhaps of more concern to these firms, the dollar bull run, which started in Q4 2021, has accelerated, suggesting future impacts could be even higher.

The report details the impacts of FX exposures among 1,200 multinational companies based in North America and Europe with at least 15% of their revenue coming from overseas, and reveals $11.21 billion in total impacts to earnings from currency volatility. The combined pool of corporations reported $4.47 billion in tailwinds and $6.74 billion in headwinds in the fourth quarter. North American companies reported $4.56 billion in collective headwinds in Q4 2021, a 390% increase compared to the previous quarter, also snapping a three-quarter streak of declining impacts. European companies reported an 80% percent decrease in negative currency impacts, with companies reporting $2.18 billion in FX-related headwinds.

“With profits at a premium, more than ever, multinationals can’t afford to let their revenues and earnings per share be vulnerable to currency movements. A strengthening dollar and increased volatility impacted revenue and earnings for US corporations,” says Wolfgang Koester, chief evangelist of Kyriba. “CFOs who don’t have precise data to support their hedging decisions, minimizing currency exposures, are the ones being impacted.”

For the second quarter in a row, North American companies indicated the Canadian dollar as the most impactful currency, with 33% of companies referencing it as impacting revenues; the euro was second with 27% of North American companies identifying it as impactful and the Chinese yuan ranking third.

Unsurprisingly perhaps, the euro was the currency most mentioned as impactful by European companies on earnings calls, followed by the Swedish krona and the dollar ranking third, remaining consistent with the previous quarter.

In Q4 2021, the US Dollar Index rose by around two points from 94.3 to around 96.3 – at the time of writing it had soared to 104.50, having briefly touched 105.00. “Corporate risk managers face a difficult challenge as inflation and currency volatility are increasing due to the myriad issues impacting global markets,” says Koester. “We are seeing a doubling or tripling of their portfolio currency risk and the cost of hedging is also increasing. CFOs require more sophisticated FX solutions to provide accurate and timely FX exposure and risk analysis to navigate their currency volatility without spending excessive amounts on hedging instruments.”