Insight & Analysis

As currency volatility whacks corporate earnings, liquidity proves essential

Published: Feb 2023

Corporate treasurers are feeling the heat from the strong dollar resulting in vital liquidity management strategies.

The sharpest moves in global interest rates in a decade as central banks fight inflation sparked a wave of currency volatility that has cost corporates billions of dollars. So says corporate treasury liquidity specialist Kyriba in its latest Currency Impact Report which forecasts more volatility through 2023.

“FX volatility is costing corporations record amounts,” said Wolfgang Koester, Chief Evangelist of Kyriba. “We saw this past quarter with headwinds and tailwinds totalling US$64bn, a clear signal for CFOs to examine their FX risk management practices.” Koester urges CFOs and treasury teams to adopt a “modern approach” to address unpredictable shifts in the market which make earnings season more challenging as certainty around future cash flows clouds.

The report, which uses data drawn from company earnings calls, found the average earnings per share (EPS) FX impact reported by companies in North America in Q3 2022 was $0.05. Publicly traded US companies reported US$43.15bn in headwinds (an increase of 26.6% over the previous quarter) compared to US$0.26bn in positive tailwinds.

For example, currency moves hit corporates like IBM which said FX contributed to a US$3.5bn decrease in its 2022 revenue in fourth quarter earnings. Elsewhere Facebook parent Meta Platforms said its US$32.2bn revenue last quarter would have been US$2bn more but for currency headwinds. The strong dollar, which rose to a 20-year high in 2022, made income earned overseas for US-based companies worth less when converted, and made US goods less competitive abroad.

“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,” said Koester.

The euro

European companies cited euro volatility as their biggest currency challenge on earnings calls, followed by the krona and the dollar. Euro volatility has caused bid/ask spreads to widen, made hedging more expensive and is causing companies to reassess their long-term hedging programmes. The top five industries that experienced the greatest impact from currency moves were health equipment and supplies, professional services, biotech and pharmaceuticals, machinery, trading and distribution, and life sciences tools and services, according to the report.


After rising to a 20-year high in 2022, the dollar is now down against a basket of currencies. Many analysts expect continued weakness in the dollar, especially if US inflation continues to soften and the Federal Reserve stops raising rates as aggressively as it has in recent months. Elsewhere, forecasters expect the euro to continue to strengthen after months in the doldrums. Falling energy prices and fears of recession in Europe have waned, suggesting that the worst of the economic damage is over. China’s re-opening is also expected to support the European economy as supply chain disruptions ease. That’s in sharp contrast to sentiment in 2022 when the euro tumbled to parity against the dollar.

Liquidity is essential to protect against currency volatility. According to Gary Slawther, a professional interim treasurer, corporates need to take a holistic view of FX risk and recognise the importance of cash management making sure their working capital is structurally cash generative and that procurement and sales teams are not offering unrealistic payment terms.

“Companies that have traditionally hedged are still hedging,” he recently told Treasury Today. “Now that interest rates have increased, a lot of treasurers who might not have hedged over the last decade or so are coming under pressure from their boards to change tack, but of course the cost of hedging has also risen.”

“When it to comes to FX, if you are right half the time you are doing very well indeed,” he continues. “My advice is to have faith in your currency management programme – in some years it will be painful, but in others you will look like a genius.”

“I have worked for five different CEOs over the last 18 months and they are all focused on improving liquidity, which is great news for treasury because this is an area where our skills and competencies come to the fore,” concludes Slawther.

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