Recent geopolitical events (including the current situation in Ukraine, the Syria crisis, and the rise of ISIL) combined with recent financial events (most significantly the SNB’s decision to cease maintaining a fixed exchange rate against the Euro) have had a profound effect on currency markets.

In addition, more long-term factors, such as the US economy entering recovery, the Japanese economy continuing to flatline, Russia entering a deep recession, and growth in China slowing, are similarly affecting exchange rates.

But what does all this mean for multinational companies? How can they navigate such a volatile currency environment?

Some of the biggest multinationals, such as Coca Cola – which recently announced that strong North American sales were more than enough to offset its currency troubles – may be able to withstand a tempestuous currency market.

That said, though a strong dollar will make energy cheaper for American companies, it will also make US products more expensive for consumers in other currencies and thus cut international demand. 

This presents US blue-chip exporters with a choice: either maintain overseas prices and watch profits fall or raise them and risk losing customers.

Moreover, whilst many companies may previously have successfully employed currency hedging to protect against exchange rate-related losses, the recent fluctuations, which have happened quickly and severely, have made this option much more difficult.

Apple for example, which generates around 62 percent of its revenue overseas, could see as much as $3 billion lost in 2015 – even if its hedging strategy is able to half the impact of currency fluctuations!

In the EU, however, a weak euro may be advantageous. A strong dollar and a weak euro encourages exports (as flush American tourists benefit from a favourable exchange rate), which is turn encourages manufacturing.  

Indeed some are predicting that, in a year or so, this surge in manufacturing will create more jobs and stimulate economic growth.

Still, success largely depends on the success of the EU’s qualitative easing – and that is far from certain.

Have the recent currency fluctuations affected you? Email us to let us know.