First, there’s the possible end, or significant renegotiation, of the North American Free Trade Agreement. Then, U.S. steel and aluminum tariffs have raised fears of a potential U.S. trade war. On top of this, political risk has risen in the United States and around the world in places as disparate as Italy and South Africa.
At times like these, when volatility is rising, middle-market companies that trade with overseas partners should pay close attention to foreign exchange risk, something most executives ignore in tranquil times.
Many executives have found it easy to pay little heed to foreign exchange (FX) in recent years as the U.S. dollar has remained relatively strong and stable. However, last year’s Brexit vote in Britain to leave the European Union was a reminder that even developed nations’ currencies can swing wildly, affecting corporate profits.
As a result of Brexit, the British pound was the most volatile developed-market currency over 12 months, swinging 9 percent against the U.S. dollar in 2017. Indeed, the currency was so volatile, that Bloomberg noted that, “The British pound has more in common with the Colombian peso and the Polish zloty than you may think.”
Anyone thinking such woes only happen elsewhere was reminded in March that unexpected things that can impact trade happen here, too, as evidenced by the recent tax imports on steel and aluminum.
