Strong Dollar Wipes out Record $43 Billion in Profits
Kyriba’s quarterly “Currency Impact Report” shows North American companies losing 26% more in Q3/2022 than in Q2/2022.
Foreign-exchange volatility hammered North America’s corporate profits to a record degree 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 percent spike from the previous quarter, which was also a record, according to the 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 released 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, U.S. 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 (FX) rates in the final quarter of 2022 as well as early this year.
“The U.S. dollar to euro was the most significant movement,” Stark said by phone. “Since then, we have seen most currencies that U.S. companies are exposed to strengthened versus the dollar.”
The dollar rally that ate into U.S. 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 percent of its value from September’s record high.
The negative impact reported by both North American and European companies 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 G-20 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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