Enhancing Company Value in a Declining Dollar Period

Year-to-date, the U.S. Dollar, as measured by the DXY, has fallen more than 10%. A 10% move in the foreign exchange markets is significant in a five-month span, and if the trend continues, it can have critical repercussions on supply chains. This is certainly counter to the trend set in 2021-2024 fueled by the elevated interest rates, economically expansive fiscal policies that attracted foreign capital to U.S. markets, and cooperative trade policies. The impact of dollar weakness on the economy is worth highlighting, and hopefully this article helps main street companies better understand how to retain and enhance company value during times of volatile currency exchange rates.

The Current Currency Environment

While the Federal Funds Rate has remained elevated relative to other major central banks, the elevated interest rates have not been sufficient to attract foreign capital in 2025. One driver has been a decrease in capital flows from other countries into U.S. assets, as seen in this report by Colliers. Another potential driver has been increasing levels of gold reserves on central bank balance sheets, which can be interpreted as an indication of broader de-dollarization. Finally, financial deleveraging (financial institutions needing to sell their positions so that they can pay back their debt in a bear market) in U.S. markets following the Liberation Day tariff announcement contributed to the drawdown in the dollar, as well. All of this culminates into an environment where U.S.-based companies can face exposure to currency exchange risk.

Risks to Consider

The major risk stems from the fact that companies have benefitted from importing cheap products that comprise their cost of goods sold over the last four years. The strength of the dollar during this period contributed to the cost savings realized by these companies. If the dollar continues to weaken, companies who import will see a rise in cost of goods sold as their purchasing power is eroded. Put simply, companies who import more than they export are inherently “long” on the dollar. This relationship is often overlooked, and the risk is left unhedged.

Further, we believe it is important for a company expecting decreasing interest rates to consider its dollar risk exposure carefully. All else being equal, when a central bank decreases interest rates, its currency generally weakens. This means that a decrease in interest rates could result in higher costs of goods sold for importers, potentially leaving the company in worse financial condition.

Another risk during times of a weakening dollar is that internationally outsourced labor will become less economical than domestic labor. A trend that has become very popular over the last few years has been to outsource professional services to India. Consider a simple example where the U.S. dollar depreciates 20% against the Indian rupee in a one-year period. This would mean that the company now needs to cover a corresponding 25% appreciation in salary expense plus a cost-of-living adjustment based on the country’s rate of inflation (exchange rates are a ratio, so a 20% depreciation in one currency implies a 25% appreciation in the other).

While this system has been highly beneficial to U.S. companies in the past, if the dollar continues to fall, profit margins could suffer significantly. Companies can enhance their value by understanding their currency risk exposure, setting contingency plans, and hedging effectively.

Opportunities to Enhance Value

Organizations can also enhance value by recognizing opportunities presented by a weaker dollar. One opportunity is that a weaker dollar makes exporting more attractive. If the dollar continues to weaken, then foreign consumers will be able to purchase more U.S. goods and services for less of their local currency. This can open up new markets to companies that have historically been unable to compete with local competition on price. While manufacturers and service providers with outsourced labor and supply chains will struggle, U.S. companies with domestic supply chains have an opportunity increase market share by penetrating previously inaccessible markets. However, some of this opportunity could be offset by tariffs should cooperative trade deals not be reached.

To summarize, the U.S. dollar has weakened 10% so far in 2025, and there are fundamental dynamics that suggest the dollar could decline further. The dollar is not near a historically low point, but the U.S. economy has become accustomed to a strong dollar that has encouraged importing goods and outsourcing labor. While this leaves many firms exposed to risk, it also creates many opportunities to penetrate foreign markets. Companies that do not understand their dollar risk exposure and are not able to take steps to mitigate it are at risk of seeing company value eroded by financial conditions. As companies navigate volatile currency markets, it is important to negotiate contracts carefully or hedge currency risks, where appropriate, with futures and forwards in order to retain or even enhance value.

At McKonly & Asbury, we offer a wide range of valuation-related and additional consulting services to serve individuals and businesses of all sizes. You can visit our Business Valuation Services page for more information, or should you have questions or would like to discuss the services we can provide in greater detail, please don’t hesitate to contact T. Eric Blocher CPA, ASA, CVA.

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