Insight & Analysis

Currencies calmer despite economic uncertainty

Published: Jul 2023

Negative currency movements for European and North American corporates have hit their lowest level in a year as the euro and pound settle down after the volatility of 2022.

Data from Kyriba’s currency impact report for the first three months of 2023 points to a continued decline in FX market volatility, with the collective quantified negative impact totalling US$22.52bn – down by more than a quarter from the last three months of 2022.

As in the previous quarter, almost all these currency losses were suffered by North American corporations. Currency gains for their European counterparts have fallen sharply since the third quarter, though, from US$16.8bn to just US$600m.

The Argentine peso was the most volatile of the G20 currencies over the period covered by the report, regaining the top spot it lost to the Korean won in Q4 2022. Both the euro and the pound fell off the list of the five most volatile major currencies after featuring in all three previous quarters.

The average negative impact to North American companies was US$145.5m, the lowest since Q1 2022. Those operating in the machinery, trading and distribution sectors were most likely to be impacted by currency movements.

In Europe, the average loss was US$212.7m with biotech and pharmaceutical companies suffering the greatest negative impact.

Recent financial results from corporates in Europe and North America demonstrate how volatility continues to affect the bottom line.

UK-based Global Ports Holding experienced foreign currency losses from operations of just over US$1.8m as of 31st March 2023. Its sensitivity to foreign currency rates increased due to the increase in its portfolio of ports in the Mediterranean.

The company’s net foreign currency position in US dollars increased from just over US$13m at the end of March 2022 to more than US$23m and its exposure to the euro and the Turkish lira also increased.

French luxury retailer L’Occitane International reported a sizeable increase in foreign currency losses over this period – up from €308,000 to €6m, comprising €2.4m realised gains, €7.8m unrealised losses and €0.5m losses related to IFRS 16.

In the US, adhesive dispensing equipment manufacturer Nordson Corporation’s first quarter results show a minor increase in sales and a favourable acquisition impact were offset by currency translation.

“Our team delivered sales growth comparable to a record fiscal first quarter 2022 despite unfavourable currency headwinds,” observed Sundaram Nagarajan, President and Chief Executive Officer.

Membership warehouse club operator PriceSmart’s third quarter results showed foreign currency exchange rate fluctuations impacted net merchandise sales positively by US$14.9m (or 1.5%) compared to the same period in 2022.

However, for the nine months ending 31st May 2023, foreign currency exchange rate fluctuations had a negative impact on net merchandise sales of US$8.6m.

“While the downward trend is substantial, we are by no means out of the woods regarding a very complicated and volatile currency market fuelled in large part by continued inflationary pressures, interest rate moves, and a general sense of uncertainty from a variety of geopolitical events,” says Andy Gage, SVP of FX solutions and advisory services at Kyriba.

“We see CFOs who can quantify the impact of currency volatility on their financial statements and cash flow in a much better position to reduce preventable FX losses,” he adds.

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