Corporates Brace For Profits Hit By FX Volatility

U.S. corporations are warning that profits and revenues will take a hit as a result of foreign exchange volatility, according to reports in The Wall Street Journal on Wednesday (Aug. 1).

Multinational firms are pointing to ongoing trade disputes as the trigger for FX fluctuations that are affecting billions of dollars in profits and revenues, reports said. The Chinese yuan reached a one-year low against the U.S. dollar last week, while despite recent gains, the euro has dropped 2.5 percent against the dollar so far this year.

Nearly two-thirds of CFOs surveyed in July by HSBC said their earnings were negatively affected by FX volatility exposure; nearly half of the CFOs at companies with revenues surpassing $5 billion said they hope to increase their FX risk mitigation strategies. HSBC’s survey also found that 77 percent of CFOs plan to allocate more funding to their FX strategies.

“The renewed focus on dampening currency risk comes as international trade tensions cloud the outlook for global economic growth and raise concerns about the future of the multinational business paradigm,” The WSJ said, adding that currency fluctuations “can hurt earnings at firms already challenged by technological disruption, the threat of tariffs and rising interest rates.”

Already the currency volatility has resulted in surprising misses for large firms. Facebook Chief Financial Officer David Wehner attributed the company’s lower-than-expected growth to FX volatility, while drinks giant Diageo missed its sales mark for the fiscal year. Its CFO Kathryn Mikells also attributed the performance to FX volatility.

Unilever CFO Graeme Pitkethly said during the company’s earnings call that “currency translation decreased turnover by 8.9 percent,” reports said. “This is a result of the euro strengthening against almost all of our major currencies,” added Pitkethly.

“The perception of risk is higher because of increased political uncertainty and volatility,” said HSC Corporate Treasury Solutions Director of Thought Leadership Holger Zeuner in an interview with the publication.

In a recent interview with PYMNTS, Leonardo Ramos, director of treasury FX dealings at EncoreFX, said he has seen an increase in treasurers recognizing the importance of FX risk mitigation.

“FX markets are becoming more mature, and treasurers more sophisticated,” he said, adding that treasurers “are much more aware of where FX markets are trading, how forward markets function, how interest rates and economic data releases affect markets, and how much spread or fees they are being charged by their bank or FX provider.”