In fact , Kybira ’ s 2023 Currency Impact Report examining 1,200 companies found that rising exchange rate risk cost them US $ 64.2bn in Q3 2022 alone . These FX headwinds were more than three times the fiscal amount of any tailwinds experienced by any of the sampled companies .
Moreover , a Convera survey found that 71 % of such businesses counted high inflation and rising interest rates as the most pressing macroeconomic issues they face , with another 49 % citing a lack of cash flow and 44 % geopolitical trade risks as the most immediate issues . These figures are best highlighted in the graph below .
With these figures in mind , it ’ s clear that exchange rate risk constitutes a significant point of friction in cross-border trade for SMEs and corporates alike . These headwinds are affecting payments and organisations ’ bottom lines .
2024 may mark a turning point , with volatility easing at the back end of the year to keep cross-border trade on a path to growth . Convera forecasts that crossborder business will accelerate some 33 % between 2023-2028 , reaching US $ 39.8tn from US $ 30.3tn in 2022 .
Today ’ s higher for longer interest rate narrative will be challenged if inflation falls to the much-coveted 2 % mark , meaning central banks could be compelled to lower interest rates .
In the US , inflation is falling , but economic resilience has resulted in volatile US rate expectations , reducing the US dollar ’ s 13 % fall from its October 2022 high , to around 7 % at present .
While falling inflation could constitute a shift in monetary policy from central banks – which in turn could impact FX rates – other factors could contribute to the broader macroeconomic outlook and the potential for further FX rate volatility : bond and equity price divergence , credit conditions , trade circumstances , and the geopolitical landscape .
This report considers each of these coalescing factors , forecasting their compounding effects on FX rates .
From Convera ’ s perspective , the key to success for cross-border trading businesses in 2024 will be determined by their ability to mitigate cross-border frictions and volatility , negate losses and maximise growth . Those who succeed will execute sophisticated hedging processes , effectively automating these processes at speed .
Having the right solutions in place will enable global organisations to address cross-border frictions , ensuring they remain beneficiaries of a growing trade industry , amid widening macroeconomic uncertainty .
Today ’ s macroeconomic landscape : A picture of economic uncertainty Exchange rates are experiencing volatility today . This is a legacy of recent crises – from the US-China trade war , the aftermath of fiscal COVID-19 measures and Russia ’ s war with Ukraine – all leading to the current cost-of-living crisis stretching from 2021 into 2023 .
Many economists predicted the global economy would fall under its weight , with high interest rates and high energy prices – the latter a partial symptom of severed trade with Russia following its invasion of Ukraine – seeing consumers ’ wallets pinched and the economy heading to a potential recession .
Despite fears , inflation – particularly in the US ( as aforementioned ) – has started to
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