Every four years, US elections shake up the FX market. If you’re aCFO or finance leader at a high-growth company holding cash in US dollars, this volatility can impact your bottom line. In this post, we’ll explore the effects of past election cycles on the FX market, what to expect in 2024, and how to protect your business from currency swings.

Who should care? 

If your company:

• Holds USD in cash

• Raises funds in USD

• Pays salaries in USD

• Earns revenue in USD

You’re exposed to FX volatility that can significantly affect profitability and cash flow.

Currency swings and your bottom line 

Finance teams juggle key metrics and growth forecasts, but even minor exchange rate fluctuations can disrupt those figures. This is especially true if you’re working for a SaaS company and tracking annual recurring revenue (ARR).

A practical example

Take a European SaaS company with $5m ARR from US clients, for example. At an exchange rate of 1.20 EUR/USD, that equals €4.17m. If the rate shifts to 1.30, that same $5m is now only worth €3.85m –resulting in a €320,000 loss due to currency swings.

This highlights how even slight FX changes can affect ARR and overall financial health.

The election effect: why markets move

Businesses often speculate how political changes will impact global trade, interest rates, and economic policies. Even a hint of uncertainty can send shockwaves through currency markets. Since the USD is the world’s reserve currency, political shifts can cause significant movements across multiple currency pairs, leading to sharp and unpredictable volatility.

To illustrate the impact of US elections on the FX market, let’s take a look at what happened in 2016.

EUR/USD exchange rate changes during 2016 election cycle

EUR/USD Exchange Rate Changes During 2016 Election Cycle

This helps to underscore how election cycles can lead to significant and rapid changes in currency values, making it crucial for finance teams to be prepared.

5 key lessons for 2024: protecting your business from FX volatility

While no one can predict the exact outcome of an election or how the market will react, you can take steps to protect your business. Here’s what you can do:

1. Plan ahead: Lock in exchange rates early to shield your cash flow from election-driven market swings.

2. Stay agile: Monitor key policy announcements during the 2024 election, they can create risks or opportunities that affect currency values.

3. Avoid timing the market: Instead of guessing market movements, focus on strong risk mitigation strategies.

4. Engage stakeholders: Keep your team and key decision-makers informed about potential currency risks.

5. Educate your team: Equip your finance team with knowledge on FX management and election impacts to support better decisions.

Final thoughts: be ready for the storm

US election cycles will always create waves in the FX market. The key is not to be caught off guard. By preparing ahead and staying agile, you can turn election volatility into a strategic advantage for your business. So, as we approach 2024, the only question is: are you ready?

If not, don’t worry! We’re here to lend a hand. Our specialists can help you develop a tailored hedging strategy. And our user-friendly platform is ideal for high-growth companies without a dedicated treasury team, providing reliable FX risk management in just a few clicks.

help@bound.cosign up for a demo