Fed Rate Cuts & Global Mobility: Currency Exchange and Budget Implications (Part 2 of 2)

As the second post related to the impact of the recent Federal Reserve rate cuts, we explore the possibilities of its impact on global mobility costs and budgeting. The Fed's rate cut (and the future cuts) creates immediate budgetary pressures for international assignment programs through currency exchange impacts that require consideration, strategic planning and policy adaptation.

We have linked to an article from our friends at ECA International that provides the basic background on how companies pay employees that move abroad. This provides a great backdrop for considering the possible impact to mobility programs that have numerous expats all over the world. 

The Weakened Dollar Effect

Immediate Impact: Fed rate cuts typically weaken the US dollar as it becomes less attractive to foreign investors. For US-based companies with international assignees, this translates into immediate cost increases.

For example, if you budgeted $8,000 monthly for a London housing allowance when the exchange rate was 1.25 USD/GBP (£6,400), a weakened dollar at 1.30 USD/GBP means you now need $8,320 to provide the same £6,400 allowance - an increase of $320 per month or nearly $4,000 annually per assignee.

Assignee Awareness Challenge: With recent variances in exchange rates hitting the headlines, assignees are becoming more aware of adverse impacts on their pay packages. The result? Global mobility teams are only an email away from having the company policy or approach scrutinized! This heightened awareness means proactive communication about currency protection measures becomes critical.

Program Composition Matters

Overall Cost Depends on Assignment Flow:

• US outbound assignments: Increased costs due to weakened dollar effect
• Foreign inbound assignments: Reduced costs as home country currencies strengthen against the dollar

Strategic Question: Organizations must determine whether to increase annual global mobility budgets to maintain the same level of support, or consider alternatives such as adjusting assignment lengths or implementing currency hedging strategies.

Strategic Budget Response

With Fed-driven currency volatility ahead, organizations need proactive exchange rate protection strategies rather than reactive responses to assignee complaints.

Policy Framework Options:

Interim Review Triggers: The most commonly cited trigger percentage is 10% - when currency movements exceed this threshold for a sustained period (typically 3-6 months), conduct out-of-cycle salary and allowance reviews. This prevents assignees from waiting until annual reviews while currency erodes their purchasing power. This can have a big impact on the overall experience.

Split Pay Considerations: For organizations with dual payroll capabilities, consider splitting salary delivery between home and host currencies based on actual spending patterns. This effectively takes exchange rates out of the equation by matching currency delivery to consumption location.

Guaranteed Exchange Rates: Used by a third of companies applying the build-up approach, this method fixes exchange rates at assignment start, protecting assignees from fluctuations without requiring dual payroll systems.

Key Implementation Considerations:

• Review international allowance adjustment frequencies: Consider quarterly reviews of housing and cost-of-living allowances for international assignments
• Implement currency hedging language: Add policy provisions allowing mid-assignment allowance adjustments when exchange rates move beyond predetermined ranges (e.g., +/- 5% or 10%)
• Build budget flexibility: Plan 5-10% budget flexibility for housing and cost-of-living allowances due to expected currency fluctuations
• Document protection methods: A clear protection approach and good documentation are both key to ensure consistent application and assignee equity
• Create strong vendor relationships: ensure that your RMC and data partner are able to collaborate and communicate together so that hot spots get flagged and reviewed and allowance adjustments are regularly scheduled.

For a deeper dive check out this article from ECA International: Conquering currency changes – Protect your expatriates from the drawbacks of exchange rate movements

2026 Planning Recommendations

Leverage Program Data:

• Analyze your assignment portfolio mix: Determine if you have more US outbound (cost increases expected) or inbound assignments (cost decreases expected)
• Model currency impact: Use current assignment data to estimate potential cost variations
• Plan for volatility: Since financing costs increase proportionally when more USD is needed to fund foreign assignments, factor this into budget planning

The key is proactive adaptation rather than reactive responses to assignee complaints. Organizations need an exchange rate protection policy in place, rather than responding on an ad-hoc basis to expat concerns. This will not only promote assignee equity but also ensure that the application of your chosen protection method is consistent and avoid setting a precedent for exceptions.

Organizations that maintain flexible approaches to currency fluctuations while enhancing their support offerings will be best positioned to leverage these changes and continue attracting top global talent while creating great on assignment experiences.