(19 February 2020 – Global) The greenback has continued on its stellar run up in 2020, acting as a dead weight on the Euro which slid more than three percent from its peak to currently trade at Q1 2017 levels.
The Euro continues to exhibit a high level of volatility as weighted by percentage of global GDP for Q3 2019 alongside the similarly erratic Chinese Yuan (CNY) creating headaches for CFOs and corporate treasurers. Currency instability is expected for the foreseeable future within the eurozone where there is still uncertainty as currency volatility intensifies further. A recent muted Euro recovery was underpinned by encouraging purchasing managers indices results (PMIs) but forecasts remain poor in the face of slowing trade, coronavirus pandemic fears and the looming US-China trade deal negotiations. The phase one deal between the US and was a step towards greater economic stability but infers recent global developments may expunge the agreement’s stability gains.
European and North American negative currency impacts mounted to US$12.3 billion in Q3 2019 according to Kyriba’s January 2020 Currency Impact Report. North American firms accounted for the lion share of the loss noting European corporates are less transparent about their downside FX risks, opting instead to report currency losses when they cross a key threshold
The Australian dollar (AUD) fell below 66 US cents to its lowest in over ten years (65.86) on fears of slowing Australian exports as a direct result from the mounting coronavirus crisis, potential RBA rate cut to a record low of 0.5 percent and strengthening USD.
“While everybody’s clinging onto the Brexit explanation. I think it was more about the political and trade and therefore economic instability that’s that Europe is going to see this year” said Kyriba Senior Strategy Officer Wolfgang Koester.
“North American firms in general are ahead of transparency on reporting on their foreign exchange impacts. There is a lag in Europe for quarterly reporting on foreign exchange. North American companies have come and said, ‘we need to continue to be transparent and keep talking about what the impacts are, be they smaller or larger’. The Europeans feel that still that the materiality threshold is on average higher from a reporting requirement point of view.”
“I think that people have categorically been able say ‘It’s Brexit’ but, they’re not watching what’s going on with Merkel, what’s going on with EU trade and what’s going on with the bloc’s economy. Then what’s also happening from an interest rate environment. There’s not much room to drop rates further. They’re already partially in negative rates. I believe that volatility and the global economics is still not that stable. Volatility is going to stay up and with that losses are going to stay up. You’re going to end up seeing continuous and increasing volatility throughout the year on currencies in general and certainly on the euro”.