How Currency Volatility Impacts Your Business

Currency markets rarely stand still. In recent months, currency volatility has returned as shifting central bank policies, uneven growth, and global political uncertainty unsettle investors. For example, in 2025 alone, the EUR/USD has moved from just above 1.02 in January to close to 1.16 by the end of October – a 14% swing. For businesses that rely on the dollar, the euro, or sterling, this volatility can directly impact margins and cash flow, making currency risk management a critical priority.

The Drivers of Today’s Currency Volatility

Even a hint of change in policy from the Fed can have immediate consequences for the dollar. All things being equal, typically, if a country is cutting interest rates, it is perceived as a negative for the currency.

The US Fed recently cut US interest rates by 25 basis points and markets are currently pricing in a further cut in December.

But monetary policy in the US is only one part of the picture. In Europe, the European Central Bank faces a delicate balance between inflation control and weak growth. Any change in tone from Frankfurt can also have implications for the euro.

The Bank of England is similarly dealing with a slowing UK economy, while inflation lingers above target. Traders remain highly sensitive to every signal from policymakers.

What are the Global Forces at Play?

Beyond central banks, several wider forces are shaping the outlook:

• Geopolitical risks: Ongoing tensions in global trade related to tariffs, shifting supply chains, and regional conflicts continue to unsettle markets.
• Energy prices: Fluctuations in oil and gas remain a major influence, particularly for European currencies.
• Election cycles: Both Europe and the US face significant political contests in 2025 and 2026, which could alter fiscal policies and investor confidence.
• Slowing global growth: Emerging market demand is uneven, and the prospect of slower Chinese growth adds further uncertainty.

What is the Outlook for 2026

The path for currencies into 2026 may be shaped by central bank policies. A period of lower US rates could weaken the dollar, particularly if European or UK rates remain steady. At the same time, slowing global demand may pressure both sterling and the euro.

Political risk is also likely to remain elevated. US elections in late 2026, ongoing debates around European fiscal policy, and questions over trade relations may all unsettle markets. Any major tariff announcements from the US President can potentially also have a significant impact on currencies.

What is The Impact for Buyers and Sellers of Major Currencies?

• Buying US Dollars or Sterling

  For businesses that buy US dollars or sterling, volatility means that costs can rise quickly when exchange rates move against them. A stronger dollar or pound makes cross-border supplier payments and overseas expenses more costly, cutting into margins and disrupting financial planning. Without protection, even small swings can have a significant impact on profitability.

• Selling US Dollars or Sterling

  For businesses that sell US dollars or sterling, the challenge comes when those currencies weaken. Revenues converted back into euros or other home currencies may deliver less value than expected. This reduces returns and makes cash flow harder to predict. Forward contracts offer both buyers and sellers a way to lock in rate certainty, protecting margins from sudden and unexpected market shifts.

Why Businesses Need Protection

No single business can control where markets move next, but every business can decide how much risk to carry.  Currency forward contracts are one of the most effective ways to secure some level of certainty in uncertain times.

By locking in rates today for future payments or receipts, companies can shield themselves from sudden adverse foreign exchange moves and focus on growing their business rather than guessing which way currencies will move.

At Fexco International Payments, we work with clients to tailor currency risk solutions that match their unique exposures. With volatility set to remain a defining feature for the remainder of 2025 and into 2026, now is the time to consider whether to put protection in place.

About the Author

John Barry
Payments and FX Consultant at Fexco

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