Jan 31, 2023
Dollar Strength Wipes Out Record $43 Billion of North American Firms’ Profits
(Bloomberg) -- Foreign-exchange volatility hammered North America’s corporate profits by a record in the third quarter, though signs of relief are on the horizon.
Currency oscillations cost North American companies $43.2 billion in the July to September period — an all-time high since data tracking started a decade ago — according to Kyriba Corp. That’s a 26% spike from the previous quarter, also a record, according to the corporate-treasury management software company.
Public companies pointed to the euro, Canadian dollar and ruble as the currencies weighing the most on profits in the period, followed by the Chinese yuan and the Japanese yen, according to Kyriba’s report Tuesday. The euro and the loonie had also earned top mentions in the firm’s second-quarter report.
After four consecutive quarters and about $97 billion in record-setting profit destruction, US companies may finally get some relief in the fourth quarter. Bob Stark, global head of market strategy at Kyriba, expects a more positive tilt from foreign exchange rates in the final quarter of 2022 as well as early this year.
“The US dollar to euro was the most significant movement,” Stark said by phone. “Since then, we have seen most currencies that US-companies are exposed to strengthened versus the dollar.”
The dollar rally that ate into US companies foreign profits has been fizzling out as currency traders position for the Federal Reserve to ease the pace of interest-rate hikes again on Wednesday. The central bank’s earlier aggressive rate increases sparked the greenback’s ascent and weighed on foreign demand. A gauge of dollar strength has lost more than 10% of its value from September’s record high.
The negative impact reported by both North American companies and European totaled $47.2 billion in the third quarter of last year, the report said. The euro was mentioned as the most impactful by both groups of companies, with the Argentinian peso named the most volatile currency among G20 peers.
“Unfortunately we’re not seeing less volatility,” Stark said. “Volatility continues, even as the headwind and tailwind direction has changed.”
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