Concerned about wide currency fluctuations during these uncertain times?

Posted on Posted in News 1

One important issue one always needs to consider when trading overseas is currency exchange rates.  Most businesses desire a stable exchange rate between their currency and the currency their supplier or customer uses.  This was always promoted as one of the major advantages of monetary union within the Euro zone.   Stability allows companies to plan and to budget.

At the current time, unfortunately there is a lot of volatility surrounding pound sterling fuelled of course by the uncertainty surrounding Brexit.  A situation which is likely to persist for a number of months at least if not years regardless of events between now and May 22nd.    This has led to a reduction in the volume of currency being traded (35% down on levels in 2016 pre Brexit referendum).

Why is this happening and does it matter to ordinary businesses?  To answer the latter yes it affects all of us, especially companies who trade with overseas countries because a major effect of this uncertainty and importantly unpredictability is banks and currency traders are increasing the spread (the difference between buy and sell rates) to mitigate risks.  As to why it is happening there are many factors at play but one interesting area is the reliance of currency traders on automated data and news analysis to enable them to predict future currency movements.  The amount of information now coming out of the UK has increased massively and the systems just can’t cope.  Secondly the sources of information which may affect the is much wider than usual making the predictions of these systems which predominantly use traditional information sources such as the Bank of England un reliable.  The result; traders can’t predict risk, customers are avoiding trading in sterling, and traders increase their spread to mitigate risk.  A very good detailed explanation has been written by Saikat Chatterjee (Reuters).

One of the biggest risks for our customers is currency fluctuations occurring in the time between placing and order and paying the deposit through tot e time when the balance becomes due for payment.  We now routinely offer our customers the chance to lock in the price and exchange rate at the time they place the order by forward buying the currency giving our customers the certainty of knowing the price they were quoted is the price they pay.  Just one small step to help companies in these uncertain times.