Implementing a robust strategy to manage currency fluctuations, especially in light of current political and economic uncertainty, is of utmost importance to organisations now more than ever, a foreign exchange (FX) expert told the business community at an event at Cardiff University yesterday (Monday 8 May).
Paul Langley, managing director of Godi Financial – formerly OSTCFX – was speaking at the ‘Brexit and Beyond’ event as part of Cardiff Business School’s executive education breakfast briefing series. The event was sponsored by property consultants, Bruton Knowles.
In addition to Mr Langley, Chris Jenkins, managing director of Market Squared, a provider of online educational trading applications, and Danny Corrigan, executive committee member of Financial Services Negotiation Forum,also delivered views on the implications of Brexit and key macro events on businesses. As key partners of the business school, the financial experts discussed currency fluctuations and associated business risk in the current political climate and as a consequence of Britain leaving the European Union (EU).
The triggering of Article 50; Prime Minister Teresa May announcing a snap election; elections in Europe; Donald Trump as US President; conflict in Syria; as well as tensions in North Korea; were all outlined as key factors contributing to market volatility.
“In the past, currency events tended to be short and sharp. Black Monday, the fall of the Berlin Wall, the Gulf Wars, even 9/11 – these major incidents happened, currencies moved, then settled. Now, the moves are far more volatile with percentage point swings on a daily basis, and this will remain the case whilst the Brexit negotiations continue. These moves can and will affect companies’ bottom line,” said Langley.
Langley noted that speculation about what kind of deal the UK will get with the EU, coupled with volatility in the Eurozone itself, mean that sharp movements in the currency markets are going to be the new normal.
“A recent survey revealed that 80 percent of SMEs haven’t hedged since the Brexit vote or amended their hedging policy in any way. Why would successful business owners or finance officers ignore the risks of currency volatility to their business? SMEs do not have to be the passive victims or beneficiaries of such volatility.
“I strongly believe businesses that make FX planning part of their long-term strategy put themselves in a far stronger position compared to those that leave currency matters to the markets. We encourage businesses to protect themselves from the effects of currency fluctuations thereby reducing risk to their underlying businesses,” Langley said.
The Brexit and Beyond event also discussed the fact that many businesses looking to expand by trading internationally have been reluctant to do so since the Brexit vote. This is because currency markets have been volatile as a result of uncertainty since the June 2016 referendum and the lack of clarity around the UK’s future trading relationship with the EU. Such volatility was noted as a deterrent to those looking to expand to overseas markets, as large moves in FX markets could hurt a company’s bottom line.
“So many businesses are simply sitting on their hands and waiting to see what happens. Business leaders need to take control now to help create more certainty for their organisations during these turbulent times. Being prepared and planning appropriately should be a priority, not ignored,” Langley added.
Whether it be a fall in the pound, a strengthening dollar or increasing import costs, millions can and have been lost by well-established companies as a result of a poor approach to FX management. EasyJet, Sport Direct and Apple were highlighted during the event as major companies faced with significant financial losses as a result of currency market fluctuations.
Langley advised that with a strong FX strategy, businesses can limit the risk of such losses: “Currency exchange may sound complicated but it can be managed. This is possible through making foreign exchange a fixed cost to your business, hedging as far forward as you can and limiting your potential liabilities to numbers you are comfortable with,” he concluded.
Swansea-based Godi looks to educate its clients and form long-term, transparent relationships with companies where any margins or fees it earns are fully disclosed. It also offers a free audit to companies where it will assess historic FX transactions and demonstrate any savings that could have been made. This approach aligns to Godi’s values of doing things differently through education, transparency and expertise, to set a new standard of service for global financial engagements.
Aussie, pound soar on reflation bets; dollar struggles
By Saikat Chatterjee
LONDON (Reuters) – The dollar struggled at multi-year lows against the Antipodean currencies and held near a one-month low versus the euro as reflation trades gripped the currency markets on Wednesday.
Federal Reserve Chair Jerome Powell reiterated on Tuesday that U.S. interest rates will remain low and the Fed will keep buying bonds to support the U.S. economy. The dollar resumed its decline towards the lows recorded at the start of the year after a brief rally in late January.
Money flowed from safe havens like the dollar, Swiss franc and the Japanese yen towards currencies expected to benefit from a pick-up in global trade, and to countries like Britain that are recovering quickly from the coronavirus pandemic.
“The extension of weakness in safe-haven currencies such as the Swiss franc appears consistent with building confidence in the global economic recovery,” MUFG strategists said in a note.
Some notable moves were seen in the currency markets this week. The franc weakened below 1.10 francs per euro for the first time since the end of 2019, with a global rise in bond yields also curtailing the appeal of the safe-haven currencies.
The dollar’s weakness in recent days has been more remarkable as it comes against the backdrop of a broader rise in U.S. yields. Benchmark 10-year borrowing costs are holding near their highest in nearly a year. [US/]
The dollar’s rise in January was largely driven by investors cutting back on record-high short bets and a rise in U.S. nominal yields. The latest weakness comes amid growing confidence in a global upswing as a global vaccine rollout to combat the coronavirus pandemic accelerates.
“In periods like this, global improvements in GDP growth prospects, which is dollar-negative, are more important than the rise in US nominal yields, which is dollar-positive,” said Vasileios Gkionakis, head of FX strategy at Lombard Odier & Cie.
The dollar index against a basket of six major currencies was at 90.111, near the six-week low of 89.941 it reached overnight.
“Risk appetite has improved a lot, and this leaves the dollar at a big disadvantage,” said Junichi Ishikawa, foreign exchange strategist at IG Securities.
The Australian dollar, which tends to benefit from rising metal and energy prices, rose to a three-year high of $0.7945 before paring gains to trade 0.1% stronger at $0.7914.
The euro bought $1.21495, close to the one-month high of $1.2180 set overnight. The British pound climbed past $1.42 overnight for the first time since April 2018.
(Reporting by Saikat Chatterjee; editing by Larry King)
Stronger pound dents FTSE 100; Lloyds rises
By Shivani Kumaresan
(Reuters) – Britain’s main stock index fell on Wednesday as a stronger pound weighed on exporters, while Lloyds Banking Group rose 2.2% after the bank resumed a dividend despite a sharp drop in annual profit.
The blue-chip FTSE 100 index was down 0.3% by 0930 GMT as sterling rose to a three-year high against the dollar. [GBP=]
Financial stocks including HSBC Holdings and Standard Chartered were among the biggest drags on the FTSE 100, tracking a 2.9% slump in Hong Kong’s Hang Seng index on concerns over policy tightening. Losses in consumer stocks Unilever PLC and British American Tobacco also weighed on the index.
“The market just seems to have lost a bit of energy and the fact that we are seeing high yields has made investors a little nervous,” said Craig Erlam, senior market analyst at OANDA.
The FTSE 100 has recovered about 35% from a coronavirus-driven crash last year, but it has come under pressure more recently as fears of rising inflation have hit equities worldwide.
The mid-cap FTSE 250 index gained 0.5%, led by consumer discretionary and industrials stocks.
In company news, Metro Bank fell 6.9% as it posted a much bigger annual loss and said it expects defaults to rise through the year as government support measures set in place due to the COVID-19 crisis are wound down.
Drugmaker AstraZeneca Plc shed 1.4%, as it told the European Union it expects to deliver less than half the COVID-19 vaccines it was contracted to supply in the second quarter.
Consumer goods maker Reckitt Benckiser slipped 0.1% even as it capped 2020 with the strongest sales in its history, while Aviva slid 0.4% as it agreed to sell its 40% stake in a joint venture in Turkey for 122 million pounds ($173.17 million).
(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Anil D’Silva)
Sterling rises past $1.42, hits highest vs euro in a year
By Ritvik Carvalho
LONDON (Reuters) – Sterling jumped above $1.42 on Wednesday, coming within touching distance of $1.43, while also reaching a year’s high against the euro as analysts retained their bullish views on the currency.
The pound is the best-performing G10 currency this year, up nearly 4% against the dollar and 3.2% against the euro as investors bet Britain’s rapid COVID-19 vaccine rollout will lead to a quicker economic rebound.
Analaysts also point to relief over avoiding a “no-deal” Brexit with the European Union at the end of last year as benefiting the pound, with the market looking through short-term headwinds and disruption. (Graphic: Reflation trade’s big FX winner: GBP, https://fingfx.thomsonreuters.com/gfx/mkt/ygdpzejmjvw/Pasted%20image%201614157016847.png)
In Asian trading hours, sterling rose to $1.4295 against the dollar, its highest since April 2020. It climbed to its highest against the euro in a year, touching 85.40 pence.
In London trade, sterling was 0.5% higher on the day at $1.4175 and 0.3% higher to the euro at 85.82 pence by 0900 GMT.
“Seemingly GBP is benefiting from a positive vaccine rollout and short-term Brexit adjustment problems disappearing, which also from a relative rates perspective is supporting GBP,” said Lars Sparresø Merklin, senior analyst at Danske Bank.
“That said, momentum seems stretched and EUR/GBP seems oversold based on our short-term models, and hence we may see short EUR/GBP take a breather from here.”
Also supporting sterling has been a pushing back of market expectations of negative rates by the Bank of England. BoE Governor Andrew Bail is due to testify before the UK parliament’s Treasury Committee today, a day after his U.S. counterpart, Federal Reserve Chair Jerome Powell, testified before the U.S. Senate Banking Committee.
“Bailey … will face a similar challenge to that faced by Powell yesterday: delivering a cautious and dovish message despite clearly encouraging recovery prospects,” strategists at ING said in a note to clients.
“Any reference to negative rates will, as usual, have a magnified market impact, but markets have now moved away from the negative interest rate policy narrative in the UK and some generic reference to openness to more monetary stimulus should fall short of revamping these expectations. Any setback in the GBP rally –- still fuelled by solid vaccination progress — should be short-lived.”
(Reporting by Ritvik Carvalho; editing by Larry King)
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