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Insight to All Things Currency and Treasury Management

As FiREapps cautioned earlier this year, a close analysis of corporate earnings reports from late 2017 revealed early signs that currency volatility could be looming on the horizon.

Now, several months later, it appears those early indications were accurate: In recent weeks, several leading news outlets have noted significant fluctuations in world currencies and, as a result, analysts are now voicing concerns these swings may be indicative of imminent foreign exchange (FX) turbulence.

Granted, the severity of current volatility varies from one analyst to the next; different media outlets are reading the tea leaves in different ways.

 

Different Publications; Differing FX Forecasts

The Wall Street Journal, for instance, noted last week that corresponding drops in the value of the Hong Kong dollar, the Russian ruble and the Kazakhstan tenge were an “alarming sign to some investors who worry that the geopolitical volatility affecting U.S. stocks is spreading to other markets.”

 

MarketWatch reported similar concerns. Under the banner “Here’s How Currency Volatility Could Stage a Comeback,” MarketWatch.comnoted that, although the FX market had briefly “calmed” of late, overarching evidence “indicates the quiet may not last” in light of a “plethora of events that … could take currencies for a wild ride.”

 

Bloomberg was more circumspect, noting that although the “Russian ruble is plunging, the Turkish lira is near a record low … and there’s talk of China mulling a yuan devaluation,” things were “surprisingly calm” – for the time being, anyway.

 

Reuters, meanwhile, sees opportunity amidst the turbulence at least for investors and asset managers who were buying and selling currency exposure through derivatives to boost and/or protect returns on the “perceived risk” in global currencies.

 

Low Volatility a Precursor to FX Flux

 

What does this mean for corporate treasury professionals and CFOs tasked with managing the impact FX fluctuations can have on corporate earnings?

It means, despite a recent stretch of relatively low volatility, they should prepare their organizations for some degree of currency turmoil. History shows that periods of FX tranquility do not last long. And even if media analysts are overreacting to current shifts and tranquility does prevail, treasury professionals should always be aware of their exposures.

It is those treasury managers who let their guard down that run the risk of seeing headwinds erode EPS or EBITDA. On the other hand, companies that leverage automated FX processes can be confident that they have the data needed to effectively manage their currency exposures, regardless of market volatility.

If your organization lacks confidence in its FX exposure data, now is the time to prepare for the next wave of volatility.  Contact FiREapps today to gain confidence in your positioning.