Americans hate it when the dollar loses value. It makes traveling in Europe so much more expensive. But this month the dollar dropped so low, it might make staying in the States more expensive too.
The dollar is the world’s global reserve currency and other countries have seen it as a stable investment for decades. But confidence in that norm might be wavering. And it will have big impacts for businesses and CFOs.
In April, the dollar value as compared to other currencies dropped 4.5%, the biggest monthly drop since 2022. Since January, the dollar value has fallen 9% to its lowest level in three years.
This sharp dropoff caught investors by surprise, many of whom thought the Trump tariffs would embolden the dollar, as an increase in the price of foreign goods would decrease US demand for foreign currency, and drive the dollar’s value up.
But instead, the extent of the tariffs and then the chaos of the rollout seems to have pushed conventional wisdom out the door and ushered in skepticism about the traditional perception of the US as a safe haven for money.
Even the rise of US Treasury yields couldn’t save the dollar’s descent. Traditionally, Treasury yields boost the dollar, but this time the dollar dropped, indicating that investors were selling off dollars in anticipation that tariffs would slow US growth.
To add insult to injury, the Treasury yield is flirting with a recession predictor called the inverted yield curve, in which short-term Treasury yields are higher than the 10-year yield. In early April, the 10-year Treasury yield dropped to 3.9%, while the 2-year Treasury yield came within spitting distance at 3.6% on the same day.
The impact? “It’s going to change your [company’s] purchasing power,” Jason Cherubini, executive in residence at Loyola University Maryland, told CFO Brew. “It takes more dollars to buy the same goods.”
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According to Cherubini, that can be a positive or a negative for a company, depending on where it buys and sells its products. For “US-based companies that sell internationally,” like Boeing or Caterpillar, their business might actually see an uptick in sales “because their goods look cheaper to foreign buyers.”
But if you source goods internationally, like Target, Walmart, Amazon, and Dollar Tree, you’ve effectively lost money, as your dollar doesn’t go as far. Your company’s wallet will end up with a double hit when you factor in the tariffs, according to Cherubini.
But unlike tariffs, the exchange rate is always fluctuating and, as most global trade is done in US dollars, a weakening dollar affects everyone in the global marketplace, not just American business transactions.
So what should CFOs be doing? Cherubini suggests “evaluating your foreign exchange exposure” and starting to hedge. Enter into forwards, futures, or currency swaps to combat the variations in the dollar exchange rate or lock in an exchange rate in a contract. This will reduce the uncertainty so your company knows exactly what the US dollar amount is going to be and isn’t at the whims of large swings in the market.
But he cautions against reacting too strongly.
“I think for a lot of businesses, and again, individuals, making smart decisions and well-thought-out decisions on your next steps and not knee-jerk reactions, is going to save people from making mistakes that are going to hurt them in the long term,” he said.
Which sounds a lot like staycations for the foreseeable future.