The strengthening US dollar is wreaking havoc on US exports in the same way a strengthening sterling thwarted UK exporters in the summer of 2014. As the US dollar grows stronger, US companies are seeing currency swings unfavourably chipping away at their profits; the Financial Times reported that Apple Inc. lost $2bn in the fourth quarter of last year due to unfavourable currency exchange rates as a result of a strengthening US dollar. This was over 10% of their net profits.
Given the capricious nature of currency markets, UK businesses currently benefitting from US dollar strength need to have strategies in place to deal with a strong dollar and the possibility of significant changes in the current dollar trend.
1. Timely Currency Repatriation
UK businesses need to gauge when to repatriate income charged in US dollars back to sterling, for use on home ground. For instance, a UK company invoicing in dollars may want to convert dollars back to sterling sooner rather than later, in case the dollar starts to weaken, resulting in less income per dollar earned.
2. Assets and Liabilities
UK companies with operations in the US need to ensure that their assets and liabilities are valued in the same currency as much as possible, so that any strengthening or weakening in currency does not affect their ability to finance their operations and business growth.
3. Robust Currency-Buying Strategies
Most important of all is the need for UK businesses trading with the US (or any other country) to set in place a currency strategy that helps them to mitigate risks should currency exchange rates move against them.
Currency markets can fluctuate greatly, and UK businesses need to be aware of the severe impact that this can have on their bottom line, as well as the steps available to mitigate the risks involved.