New York (Reuters) – Corporate Treasurers increase efforts to protect companies' earnings against more dollar (Dx = f) Strength, a movement that some analysts highlighting more convict said that President Donald Trump's tariff plans will help keep US currency higher for longer.
The US dollar index is about 7% higher than its lows in September, hovering close to two -year heights arrived in Jan the United States and Trump's defensive trade policies.
Speculators have loaded bullish bets on the currency, driving up a long net dollar position to as high as $ 35 billion, the largest in nearly nine years.
Corporate treasurers, who often use front -got, currency options and exchanges to reduce potential losses of currency variations, usually move at a greater position speed. But they are increasingly coming around to the view that the dollar may power higher or stay at these high levels for a while.
“The corporate community is slower to operate and more deliberate,” Paula Comings, head of foreign exchange sales in the US bank.
“(But) we have seen those with a significant exposure of foreign revenue they need to return, adding to the predicted cash flow hedgerow programs,” he said.
“What we hear from clients is that they plan for perseverance of the dollar,” Comings said.
File Photo: US Dollar Paper Currency is seen in front of a stock graph displayed in this photo taken
Multinational companies like Apple (Aapl) and Microsoft (Msft) has already warned the strong dollar stands to press financial consequences in the coming months.
Although there is little visibility to the aggregate level of corporate hedgerow activity, interviews with market participants show the stimulus to protect against further dollar strength initiated into high gear before the US November election and in anticipation of Trump's potential victory.
“Leading to the election, our research showed that North American companies under $ 100 million of market cap were well aware of the probability, as well as risks, a strong dollar after the nation enters the polls,” Eric Huttman, CEO of Milltechfx, said.
“Half of these smaller companies said they were concerned about the impact of policy changes on currency values,” he said.
The vulnerability of foreign exchange markets came to light this week as threats of US tariffs against Mexico, Canada and China stimulated a rally on the dollar and triggered a surge in volatility.
Although the stronger dollar is a reflection of the relative strength of the US economy, it can cause a problem for some companies. A strong US currency makes it more expensive for multinationals to convert foreign profits into dollars, while also hurting the competitiveness of exporters' products.
“We have seen a strong increase in hedgerow activity across a wide range of industries, as corporations have sought to protect themselves from the higher volatility environment and the growing uncertainty since winning the Trump election and the strong dollar rally,” Kyle Chapman, analyst Kyle FX FX, FX Market at Ballinger Group in London, he said.
“FX is driven by ubiquitous headings even outside the market cycles, and this draws the attention of treasurers to market variations,” he said.
Underpinning this increase in hedgerow activity is a growing conviction that the strength of dollar is here to wait for a time as Trump's tariffs take effect.
“There is a general feeling that we have entered a stronger dollar environment since Trump's re -election … the rally scale and speed since September have woken people up to the impact of FX movements on the bottom line,” said Chapman.
In recent weeks several companies have reported and projected a significant negative impact due to unfavorable movements in the currency market.
Apple (Aapl) He warned at the end of January that he expected the stronger dollar to shave 2.5 percentage points of his current quarter revenue, on a year -on -year basis.
Johnson & Johnson (Jnj) Also said unfavorable foreign currency movements shave off $ 1.7 billion, or 2%, from its sales 2024, while Microsoft warned that its third -quarter revenue growth would be hit 2 percentage points due to the stronger dollar.
Smaller and less FX-Sophisticated companies, often limited by slender hedgerow budgets, a limited amount of capital they can tie in hedges and a lack of overall access to more advanced hedgerow programs with the best prices, face a bigger challenge of a lively buck from a lively buck.
“The stronger dollar requires Treasury teams in smaller corporations to more carefully manage FX risks and implement audio hedgerow strategies to help adapt to this new normal,” said Huttman Milltechfx.
Amol Dhargalkar, management partner of the Risk Management Company Chatham Financial, said large companies have extended more than expected to review and update their hedgerow program due to concerns about dollar strength, and it was no surprise to see smaller companies now making similar moves .
While the tariff-related headlines may have stimulated lifting in hedge activity, it could get worse more in trade tensions undermining those efforts as an all-out trade war could risk companies' ability to predict business activity and give effective hedges , Analysts warned.
“For many businesses, their basic cash flow is at risk here … Some may have to realign their supply chains while some have to deal with lower customer revenue in international settings,” said Karl Schamotta, chief strategist Market with the Corpay Payments Company in Toronto.
“It's a lot of cross currents and it's not just a linear increase in hedgerow volume,” Schamotta said.
(Reported by Saqib Iqbal Ahmed and Laura Matthews; Edited by Lewis Krauskopf and Marguerita Choy)
