Capital Markets  – Navigating FX, rates & cash flow uncertainty

There is considerable market uncertainty, stemming from tariffs, global economic weakness and fluctuations in foreign exchange rates. For this reason, finance leaders should revisit their liquidity needs and cash buffer.

“What perhaps felt like a nice cushion a year ago may no longer be adequate today,” explains Westbrook. Building a larger cash buffer now, if possible, would provide more runway for future issues, like less demand than forecasted and higher supply costs.

Finance leaders should also review their revolving line of credit. Once again, what may have been suitable to smooth out past short-term cash flow cycles before may not be enough for the year ahead, given rising costs and possible slower customer payments as they manage their own cash flow challenges. The time to expand a borrowing limit is before your business needs it.

Besides financing, review your treasury management system for ways to optimize. For example, if you typically collect paper checks from clients, you could start transitioning them to ACH for faster collection. All these steps will improve your cash flow and liquidity amid uncertainty.

The U.S. dollar (USD) remains significantly overvalued by historical standards, even after its depreciation since the start of the year. Factors such as the potential adverse effects on U.S. growth from tariffs, a more balanced landscape across global currency markets and an anticipated increase in hedging activities, could lead to further weakening of the USD over the next 12 months.

In addition, markets have increased expectations for volatility in exchange rates. “Historically, since around 2015, volatility has led to a stronger USD, but that has shifted to favor a weakening dollar in 2025,” says Todd Liska, Executive Director of FX and Commodities at CIBC

Finance leaders who have become accustomed to a strong dollar environment over the past decade may need to reassess their FX strategies. “While that’s a high priority for U.S. companies with direct exposure to a declining dollar, even companies who settle international trade in USD should revisit their FX strategy given the changing conditions,” he adds.

Finance leaders should also consider FX strategies that use participation-based structures. These strategies can help protect against further USD weakness, but also offer the ability to realize some level of upside from favorable market movements. This may be key for finance leaders who have been unhedged.

While no one can predict the direction of FX markets over the next year and beyond, finance leaders should not automatically assume a strong USD market as the default, considering the 2025 trends.

Economic uncertainty has cast a cloud over businesses, investors and the Federal Reserve itself. All are seemingly at a standstill as tariffs and trade negotiations take center stage.

It’s unclear whether the Fed will cut rates later this year to support a weakening labor market or if it will maintain current rates to offset rising prices and possible inflation from tariffs. “Companies are holding onto price increases for now. If tariffs continue into the summer, businesses will likely have to raise prices, which would create inflation,“ says Charlie Cashman, Director, U.S. Interest Rates at CIBC.

Companies looking to borrow are forced to bet one way or the other in terms of interest rate trends. Fixed-rate debt protects against future rate increases, while floating-rate debt benefits from lower future rates.

Once again, hedging can offset this interest rate uncertainty. A combination of fixed-and floating-rate debt insulates against fluctuations regardless of what happens. Participating strategies, such as an interest rate collar, provide some rate certainty for the future while offering upside potential should interest rates move in an advantageous direction.

As finance leaders evaluate new projects and investments using a discounted cash flow model, some may appear viable at today’s rates, but not if future rates go up. “These hedging strategies reduce the uncertainty, turning opportunities that might be a no into a yes,” explains Cashman.

Predicting future market conditions in 2025 may feel impossible, especially at a time when government policies can change quickly. And trying to predict the future is not what finance leaders should concentrate on.

Instead, by utilizing the right treasury management, working capital, FX and interest rate strategies, you can mitigate these major risks, allowing you to focus on running your business instead of worrying about the latest policy developments in Washington.

The CIBC Commercial Banking team can help you do just that. Reach out at any time to discuss the latest trends and work with experts to develop a plan that fosters stability in 2025 and beyond.

Annie Mulock Westbrook 

Phone: 412-500-7673 Opens your phone app.

Email: annie.westbrook@cibc.com Opens your email app.