2025 Foreign Exchange and Commodities Report: Key Insights for Manufacturers
Currency Fluctuations, Commodity Prices and the Road Ahead for Manufacturers
By Bart Pelton
PelRay International Co., A Division of Brush Fibers, Inc.
For many years, I presented a report on commodities and currencies at the annual mop and broom convention in St. Louis, Missouri, focusing on their impact on raw material costs in our industry. Unfortunately, since the COVID-19 pandemic, we haven’t been able to hold these meetings. However, Dylan Goodwin of Brushware suggested the report could be published through the magazine and I was happy to oblige.
There are significant developments in our industry, so I’ll begin with a review of commodities and currencies in 2024. Additionally, I’ll touch on some key figures making headlines who are already influencing our outlook — and will likely continue to do so into 2025.
Notably, we have President-elect Donald Trump and Mexico’s President Claudia Sheinbaum. She was elected in June, while Trump’s election was finalized just recently, in early November. One of the central topics both leaders are discussing is trade.
Euro Exchange Rate
Many companies in the brushware industry import and export to Europe. The exchange rate between the U.S. dollar and the euro is critical given the volume of U.S. imports and exports to Europe. The chart (page 29) shows how many dollars it takes to buy a euro. While the fluctuations might appear dramatic, they are relatively moderate, ranging from approximately $1.05 to $1.12 over the past year.
Compared to this time last year, the euro is slightly weaker, though not significantly. When it comes to imports from Europe, ocean freight rates have had a more substantial impact on costs than the exchange rate over the past year. However, the topic of ocean freight is a separate discussion altogether.
Mexican Peso Exchange Rate
Now turning to the Mexican peso: the accompanying chart (page 29) tracks how many pesos a U.S. dollar can buy, spanning back to 2021. For much of 2021 and late into 2022, the peso traded within a tight range of around 20 to 20.5 pesos per dollar.
However, in 2023, the peso experienced a period of sustained strength, appreciating by approximately 15 to 20 percent, depending on the reference point. The peso’s value rose to 16.5 pesos per dollar, a substantial shift from prior levels. This sharp appreciation drove up the cost of imports from Mexico, including brooms, broom corn and Tampico fiber, putting significant pressure on costs.
A pivotal moment came in June during Mexico’s presidential election. While Claudia Sheinbaum’s victory wasn’t inherently problematic, her party achieved a supermajority in Congress with the election, and that ability for the party to change laws raised concerns among financial markets based on the potential that Mexico could become less democratic than it has been in recent decades. This outcome led to a weakening of the peso, a trend that accelerated further after Donald Trump’s U.S. election victory and subsequent discussions about potential import tariffs.
Consequently, the peso has returned to levels seen a few years ago, easing some of the cost pressures on Mexican imports. That said, we shouldn’t expect prices to return to 2019 levels due to the cumulative 15 to 20 percent inflation in Mexico since then. However, this recent currency shift is certainly a step in the right direction for cost relief on imports from Mexico.
Canadian Dollar Exchange Rate
Many industry companies do business in Canada, both importing and exporting. The exchange rate between the U.S. dollar and the Canadian dollar plays a significant role for brushware companies. Over the past year, the exchange rate has fluctuated modestly, starting around $1.32 USD to CAD at the beginning of the year and moving up by about $0.08. While this may not seem substantial on a chart, it’s meaningful in practice.
Currently, the U.S. dollar is more expensive in terms of Canadian dollars than it has been in recent years. For Canadians purchasing U.S. dollars, this represents a 40 percent premium, which makes U.S. exports to Canada less competitive. This poses challenges, especially for Canadian importers selling retail goods, as maintaining competitive pricing in Canadian dollars becomes increasingly difficult.
The recent weakening of the Canadian dollar is partly driven by concerns about tariffs and other economic uncertainties. This trend is worth monitoring, especially for companies dependent on cross-border trade.
Brazilian Real Exchange Rate
Brazil also plays a significant role in our industry, particularly for those importing wood handles. Most of the hardwood handles used in our sector use tauari sourced from Brazil, so the exchange rate with the Brazilian real has a direct impact on costs.
Over the past year, the real has weakened considerably, moving from approximately 4.75 BRL to USD at the start of the year to nearly 6 BRL to USD recently. While Brazil’s domestic inflation remains a factor, the weakening currency has helped reduce the cost of importing products from Brazil. However, some of these savings have been offset by higher freight rates, which continue to influence overall costs.
Indian Rupee Exchange Rate
India has been gaining attention as an alternative sourcing destination to China for low-cost imports. Many companies are exploring opportunities to import from India and for our industry, imports from India include palmyra fiber and some mop yarn, though the volume of mop yarn imports remains relatively small.
Over the past year, the Indian rupee has experienced a modest weakening, moving from approximately 83 INR to 85 INR per U.S. dollar. While this represents only a small percentage change, it’s indicative of a trend that could offer slight cost benefits for imports from India.
Chinese Yuan Exchange Rate
China remains a key player in global trade, but its currency, the yuan (RMB), has always been closely managed by the Chinese government. There is a long-standing belief that China keeps its currency undervalued to maintain its export competitiveness, and there’s likely some validity to this perspective.
Recently, the yuan has shown a slight weakening, moving from around 7.05 RMB to 7.25 RMB per U.S. dollar. This range is not particularly wide and reflects only a modest change over the past year, bringing the exchange rate back to levels seen earlier this summer.
South African Rand Exchange Rate
The South African rand (ZAR) has shown some strengthening against the U.S. dollar over the past year. In 2023, the exchange rate was around 19 ZAR to 1 USD but improved to nearly 17 ZAR at one point. Currently, it’s hovering at about 18 ZAR to the dollar.
A key factor influencing the rand’s performance has been the price of gold, which has been driving the currency higher. This is noteworthy for our industry because of its impact on importing broom grass from Lesotho, a country that uses the South African rand as its currency. Broom grass is a popular alternative to broomcorn, making the rand’s movement particularly relevant for cost considerations in our supply chain.
Bitcoin and the Stock Market
While it’s not a traditional or government-backed currency, Bitcoin is a well-known cryptocurrency. Many investors speculate in Bitcoin and other cryptocurrencies, and there are even ETFs (Exchange-Traded Funds) available on the stock market tied to cryptocurrency values.
Interestingly, Bitcoin-related entities donated significantly to President Trump’s re-election campaign. As a result, we can expect minimal government regulation or control over cryptocurrencies in the coming four years. This expectation is likely a driving factor behind the recent rally in Bitcoin prices. Cryptocurrency trends can also serve as an indirect measure of speculative activity in the economy, reflecting investors’ appetite for risk.
Moving on to the stock market, the chart for the S&P 500 highlights a sustained bull market throughout the year, with the index currently near or at an all-time high. Financial markets appear pleased with the results of the recent elections, contributing to this strong performance. While it’s uncertain whether this trend will continue, the stock market’s current strength is a promising indicator of economic confidence.
U.S. Money Supply: A Key Economic Indicator
One critical factor I monitor is the U.S. money supply. In my report four years ago, I predicted significant inflation due to the extensive economic stimulus implemented at the start of the COVID-19 pandemic. At one point, the U.S. money supply had grown by 25 percent year over year — a staggering increase.
Not all economists consider the money supply a crucial metric anymore, but I take a more traditional view. I believe that when more money is printed, prices inevitably rise. That’s precisely what happened during the early days of COVID. The Federal Reserve, at its peak, was monetizing $75 billion in government debt every month, driving an explosion in the money supply.
Eventually, Federal Reserve Chairman Jerome Powell recognized the risks and the Fed raised interest rates and ceased its aggressive bond-buying program. That significantly slowed money supply growth and at one point, it even turned negative. These measures have been instrumental in reducing inflation from nearly 10 percent annually to about 2.5-3 percent today. The Federal Reserve’s restraint in allowing the money supply to grow has been a key factor in curbing inflation and stabilizing the economy.
Commodities
The commodities market is a key area that in some cases directly affects our input costs and pricing dynamics. The following sections highlight key commodities and their recent trends, providing insight into the current landscape and what may lie ahead.
Gold
While we don’t use gold in brooms or mops, it remains an important economic indicator. In many cases, gold acts as a proxy for inflation, and it’s often viewed as a safe haven investment during periods of geopolitical tension or conflict. This year, gold has been on a notable rally. About a year ago, prices hovered just below $2,000 per ounce; more recently, they’ve approached $2,700 per ounce. At the moment, that upward trend appears to be continuing, reflecting ongoing uncertainty and risk-averse investor behavior.
Crude Oil
Crude oil prices have been equally intriguing. With conflicts in the Middle East and Eastern Europe, many analysts anticipated a significant surge in prices. Surprisingly, this did not materialize. Several factors contributed including record production levels in the United States and lenient enforcement of sanctions on major oil-producing nations such as Iran, Russia and Venezuela. From a political standpoint, there was a line of thinking that the democrats wanted to keep gasoline prices stable to improve their chances in the election, so being more lenient on the sanctions allowed for a greater supply. Although oil isn’t cheap, it currently sits around the same price as a year ago — remarkably lower than what many economists had forecast considering the overall global conditions.
Natural Gas
Natural gas plays a pivotal role in the U.S. economy, not only as a key source of electricity generation but also as a feedstock for the production of plastics and other industrial products. Prices tend to be seasonal, with demand rising during colder months as homes and factories require more heating. A recent cold snap across the northern United States has nudged prices upward again.
Despite these fluctuations, current natural gas prices — around $3.30 per thousand cubic feet — remain historically reasonable. Moreover, the United States is exporting more natural gas, so the U.S. has some of the lowest prices in the world. This affordability provides a competitive advantage to both U.S. manufacturers and consumers.
Cotton
While mop yarn used in our industry doesn’t come directly from virgin cotton, the price of raw cotton still influences mop yarn costs. Cotton prices spiked earlier this year but have since settled, now hovering around $0.70 per pound, slightly lower than a year ago. As a result, cotton-based mop yarn prices have been relatively stable or even soft throughout most of the past year.
Lumber
Lumber prices have seen fluctuations — moving up, then down, then up again — but overall, they’re not significantly different from levels recorded a year ago. Lumber futures are worth watching closely since they impact the cost of wooden handles. With more of our industry’s handles now manufactured in the United States using Southern Yellow Pine, domestic lumber prices play an increasingly important role in managing production costs.
Copper
Copper is used in so many industries, it is often viewed as a reliable indicator of global economic activity. While prices were higher earlier this year, they’ve since declined, reflecting a global economy that isn’t growing quite as rapidly as before. The recent easing of copper prices suggests a more measured pace of economic expansion in the months ahead.
Political Landscape and Potential Policy Shifts
With Republicans securing majorities in both the House and Senate, President Trump now has the political support needed to advance much of his agenda, particularly on tax and budget matters. However, trade policy is unpredictable at this point, leaving many businesses uncertain about what lies ahead.
Recently, the President has threatened substantial import duties — 25 percent on imports from Mexico, additional tariffs on Canadian goods and 10-20 percent across the board on Chinese products. Notably, the executive branch holds the authority to impose many of these measures without Congressional approval, leveraging existing laws to enact tariffs quickly.
From an economic standpoint, the value of such tariffs is debatable. While some may argue they serve as a negotiating tactic or a tool to bolster domestic manufacturing, many economists — including those of us who have studied the field — view tariffs as a terrible idea. If implemented, this could represent one of the worst economic policies the U.S. has seen, dating back to Jimmy Carter’s windfall profit tax or Richard Nixon’s wage freeze and price controls. They risk damaging the U.S. economy and the economies of our major trading partners while inviting retaliatory tariffs. Nobody wins a trade war — everybody loses.
Tax Policy Considerations
On a more positive note, it appears likely that the 2017 tax cuts will be extended. These reductions lowered marginal tax rates and corporate rates, which had a favorable impact on investment and productivity. However, there are also discussions around additional tax adjustments — not all of which are supply-side in nature. Proposed measures such as eliminating taxes on Social Security, tipped income or overtime pay may not significantly stimulate supply. Instead, they could add to inflationary pressures without offering a corresponding increase in economic output.
Additional Considerations
Reduced business regulations, particularly in the energy sector and other areas of the economy, are generally regarded as positive for growth. However, the persistence of large budget deficits continues to pose a serious concern. Meanwhile, the Federal Reserve’s decision to lower interest rates and increase money supply growth suggests that we may see an uptick in inflation as we move into next year.
ABOUT THE AUTHOR: Bart Pelton is the president of PelRay International Co., a division of Brush Fibers. The PelRay International Co. has been meeting the needs of manufacturers of brooms, mops and brushes worldwide for decades. To learn more, visit www.pelray.com.
