Corporate Chief Financial Officers Navigate FX Risks as U.S. Elections Approach

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As the 2024 U.S. elections draw closer, North American corporate Chief Financial Officers (CFOs) are facing the challenge of dealing with a strengthening dollar and the possible impacts of upcoming political changes.

According to the second annual Corporate Chief Financial Officer FX Report by MillTechFX, these leaders are carefully watching foreign exchange risks and adjusting their plans to protect profit margins.

Companies Adjust FX Strategies Amid Concerns Over Currency Value

The report, which gathered insights from 250 senior finance decision-makers, highlighted important trends in managing foreign exchange (FX) risks. It also focused on the growing use of automation and strategic adjustments to address the challenges of a strengthening dollar.

According to the report, companies are concerned about how possible policy shifts during and after the U.S. election might affect the value of different currencies.

The survey revealed that 44% of Chief Financial Officers see these changes as a major issue for their businesses. The Chief Financial Officers also reported concerns about unpredictable market shifts and risks from business partners, according to MillTechFX.

With these challenges ahead, the report noted that many corporations are changing their FX strategies. The survey revealed that 86% of companies plan to boost their currency hedging activities, especially for the U.S. dollar against the Canadian dollar (USD/CAD) and the Chinese yuan (USD/CNY).

Hedging is a strategy used to limit losses due to changes in currency value. This move comes as companies try to avoid losing profits due to a strong dollar, which could lower their competitive advantage.

As stated in the report, most Chief Financial Officers believe that the U.S. dollar will continue to grow stronger, causing concern for corporate profits. Nearly all respondents reported worries about how the strong dollar could hurt their bottom line, leading many to rethink their FX plans to reduce possible losses.

Election Impact And Credit Challenges Lead Companies To Shift FX

Eric Huttman, Chief Executive Officer of MillTechFX, commented on the findings, stating that the U.S. presidential election could bring added challenges to managing FX risks. He explained that changes in policy, shifts in economic directions, and adjustments in global strategies might have a strong impact on the dollar’s value.

Huttman added that previous elections showed how currency markets respond to new leadership. For instance, the dollar gained 5% following Trump’s 2016 win but fell a similar amount around Biden’s 2020 victory.

Due to recent market changes, companies have shifted their hedging methods. According to the survey, 82% of companies now hedge against expected currency risks, a slight increase from 2023. However, many companies are reducing their average hedge ratio to 49% from 60% and are limiting hedge timeframes to about five months.

Securing credit has also become a key issue, with 31% of firms naming it as their main concern. According to the report, tighter credit limits from providers and rising costs are forcing companies to seek new quotes. Chief Executive Officers are also trying to adapt by finding ways to manage these credit issues more effectively.

About Ali Raza PRO INVESTOR

Ali is a professional journalist with experience in Web3 journalism and marketing. Ali holds a Master's degree in Finance and enjoys writing about cryptocurrencies and fintech. Ali’s work has been published on a number of leading cryptocurrency publications including Capital.com, CryptoSlate, Securities.io, Invezz.com, Business2Community, BeinCrypto, and more.