Guest blog: Businesses need to act now on struggling Sterling
Guest blog by Luke Walden, FX expert, GODI FINANCIAL
Since last summer’s Brexit referendum – when Sterling witnessed its largest single intraday drop against the dollar – the pound has experienced swings in value, both to the upside and downside.
Plenty of SMEs across the UK have experienced the resulting impact on the value of the international payments they are making or receiving – many with an adverse affect on their bottom line.
Yet amazingly, a recent survey[i] revealed that 80% of SMEs either haven’t hedged their currency exposure at all since the Brexit vote, or haven’t amended their hedging policy in any way.
Sterling weakens further on ‘surprise’ UK election results
Elections of any kind have a tendency to bring uncertainty which can cause unexpected fluctuations in the currency markets. As such, the surprise hung parliament result has plunged Sterling back into murky waters. Markets hate uncertainty and the recent UK election is no different.
When Theresa May announced the snap election back in April, Sterling surged higher on the assumption that the Conservative Party were so far ahead in the polls and as such would be well placed to see off any threats to their leadership. How so much can change in just two months. With the Conservatives now having to make an agreement with the DUP to gain a majority government, as well as juggling the impending Brexit negotiations, it means volatility to Sterling and the FX markets in general is here to stay for the short to medium term at least.
Since the result, we’ve seen Sterling depreciate against major peers, but the Euro in particular, and many analysts are predicting potentially further falls to come.
Taking a proactive stance to protect your business
It is accepted wisdom that, in the coming months, significant political events around Europe as well as in the UK are likely to have a noticeable impact on currency markets. Businesses that are making or receiving international payments need to take action now to protect their operations – and their profit margins – against the risk of currency volatility.
Businesses that make FX planning an integral part of their long-term strategy put themselves in a far stronger position compared with those SMEs that leave currency matters to the markets.
Taking control of international payment costs…
One of the most common mistakes among businesses that trade internationally is simply not knowing how exchange rate fluctuations can affect their bottom line. This can make it difficult for SMEs to mitigate the risks of currency volatility, and they may end up making snap decisions in reaction to market movements, which could prove costly in the long term. It is recommended that businesses do several things to review their risk: an assessment of their foreign exchange risk and cash flow; a price comparison of their bank or FX provider; speak to an FX expert on strategies to help reduce currency exposure. Learn more about protecting your business from currency volatility here.
(i) The author is an external contributor and does not represent or act on behalf of Cripps LLP;
(ii) Any views, advice or other content set out in this article are those of the author and are presented for discussion and information only and should not be considered to be an endorsement by Cripps LLP;
(iii) Readers should not act or refrain from acting on the basis of the content of the article (none of which constitutes legal and/or investment advice from Cripps LLP) without first taking proper legal and/or investment advice specific to their circumstances.