The drag on corporate profits from fluctuations inforeign-exchange rates is getting worse as the second quarter comesto a close.

Currency-market volatility that's almost doubled in the past 12months poses the biggest threat to earnings of any year on record,according to FiREapps, a Scottsdale, Arizona-based company thatadvises businesses and makes software to help reduce the impact ofcurrency swings. That would surpass the approximate US$47 billionin losses that North American companies reported in 2012.

Companies from Facebook Inc. to Microsoft Corp. have alreadywarned that their bottom lines will take a bigger hit than in thefirst three months of the year. While the dollar's surge is themain culprit, swings in everything from the euro to emerging-marketcurrencies are magnifying the pain and making it more expensive tohedge.

“A key message that we have for our corporate clients is thatvolatility is back,” said Shaun Osborne, chief currency strategistat Toronto-Dominion Bank in Toronto. “If companies thought it hadbeen bad in 2014, 2015 is not going to be any easier.”

The dollar has been rising in anticipation of the FederalReserve's first interest-rate increase since 2006, reducing thevalue of earnings abroad when converted back into the greenback.The rally has also made goods sold by American companies lesscompetitive overseas.

Bloomberg's Dollar Spot Index reached a record on March 13,capping a 22 percent advance that began in July. The gauge—whichtracks the greenback against 10 major peers including the euro,yen, and British pound—has since fallen 3.9 percent.

The dollar is forecast to strengthen versus all but three of its31 major peers by Dec. 31, according to strategist estimatescompiled by Bloomberg. At the end of last year, the dollar waspredicted to drop against 13.

The average North American company lost 8 cents per share due tocurrency fluctuations during the first three months of the year,almost double the average in 2014, according to FiREapps, whichmonitored 850 earnings conference calls. North American andEuropean companies lost a combined $31.68 billion, 55 percent morethan in the fourth quarter.

'Not Over'

“This is not over yet,” said Jack Ablin who helps manage about$66 billion as chief investment officer at BMO Private Bank inChicago. “It's sort of a one-two punch for U.S. multinationals.Their goods become more expensive abroad and their profits becomediminished.”

Wal-Mart Stores Inc., the world's largest retailer which getsmore than a quarter of its revenue from international markets,missed analysts' first-quarter earnings estimates in part due toswings in exchange rates. Chief Financial Officer Charles Holleywarned on a May 19 conference call that investors should beprepared for similar detractions from earnings due to currencymovement the rest of the year.

A JPMorgan Chase & Co global index of implied volatility incurrency options has risen to about twice its record-low 5.28percent touched in July. Higher implied volatility, a componentused in pricing options to buy and sell currencies, also meanscorporations' hedging costs have risen at the same time their needfor insurance against foreign-exchange changes has grown.

Facebook lost 7 percentage points of revenue growth due to thestronger dollar last quarter and expects a bigger hit in thecurrent period, Chief Operating Officer Sheryl Sandberg said in anApril 23 conference call.

Microsoft Chief Financial Officer Amy Hood said the same monththat the “significant impact” of the strengthening of the dollar onthe company's quarter-end March 31 results will worsen in theApril-to-June period. London-based SABMiller Plc said in May itexpects currency headwinds to remain challenging in part as itlifts raw-material costs.

Standard & Poor's 500 Index earnings are forecast tocontract 6.6 percent to $28.54 per share in the second quarter,down from growth of 10 percent a year earlier, according to datacompiled by Bloomberg. The full-year estimate for 2015 is $117.50per share, which would mark a 1.2 percent expansion for the12-month period.

“2015 will likely be the worst year we've ever seen with regardto negative earnings impacts on companies,” said Wolfgang Koester,chief executive at FiREapps. “There is volatility in so manydifferent currencies as major central banks are no longer takingconcerted efforts to manage markets. That is causing havoc.”

–With assistance from Dina Bass in Seattle, Renee Dudley inBoston, Simon Casey, Drew Armstrong and Joseph Ciolli in New York,and Mary Schlangenstein and Thomas Black in Dallas.

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