FX risk management will remain a challenge in 2023
With little likelihood of currency volatility subsiding any time soon, corporates continue to face difficult decisions when it comes to how best to mitigate FX risk.
FX volatility had a profound impact on corporate performance last year. Indeed, Kyriba’s currency impact report for the second quarter of 2022 noted that the 1,200 North American and European multinational companies it surveys sustained more than $49 billion in total impacts to earnings from currency volatility, with negative impacts rising sharply on both sides of the Atlantic.
Government debt is dangerously high almost everywhere, and this hasn't been a more pressing issue for years only due to declining/low interest rates
Corporates hoping for a return to more tranquil market conditions this year are likely to be disappointed. ING’s G10 FX outlook for 2023 suggests that the year will see increased volatility with lower excess central bank reserves leading to tighter liquidity conditions.
As different countries face different risks and economic impacts, persistent FX volatility should be expected, says Scott Bilter, principal of Atlas FX.
“This will not necessarily be in the same direction as in 2022 (when the US dollar strengthened against almost every other currency), but there could certainly be shocks even greater than what have been experienced recently in major currencies,” he says.