European corporates lose out on currency gains as FX volatility plummets
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Foreign Exchange

European corporates lose out on currency gains as FX volatility plummets

European corporates have been the big losers from lower overall FX market volatility in the first half of 2023 as EUR/USD normalised while the yen and yuan continued to struggle.

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The effect of reduced macroeconomic and cross-asset volatility since the start of 2023 was made evident by the first quarter currency impact report from cloud treasury solutions firm Kyriba, published in July.

According to data from the earnings calls of 1,200 publicly-traded North American and European companies, the collective quantified negative impact of currency movements was $22.5 billion, a 25.5% decrease from the fourth quarter of 2022.

The drop in volatility was helped by a resynchronization of monetary policy between the major central banks as market expectations shifted towards anticipating the peak of the US Federal Reserve’s tightening cycle and how its peers would move to catch up.

The market was also concerned that the Fed’s aggressive approach would tip the US economy into recession, a view amplified by the US regional banking crisis, observes Nick Kennedy, who manages FX strategy at Lloyds Banking Group.

“So far that view has proven excessively gloomy but it helped contain dollar moves and broader currency volatility earlier in the year,” he says.

Disinflationary trends and resilient growth in many parts of the world saw a number of central banks slow their tightening cycles earlier in 2023.


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