The last year has meant profound changes on all facets of our lives, but it is reassuring to see that sterling has been doing well against the dollar. This in part was due to a calculated risk by the government in supporting the rollout of the COVID vaccination programme.
The resolution of the Brexit trade deal with the EU at the end of 2020 brought relief and allowed businesses to get back to business. But the first month of 2021 has shown there may be trouble ahead for the pound versus the euro. January figures from the UK showed a drop in exports to France of 30%, a 56.2% drop to Germany and a 70% drop to Italy. Businesses have been setting up offices in Europe, meaning those tax receipts will no longer come into the UK. On the other hand, early signs show the next 6-12 months could see more of a struggle for the pound, as Europe catches up with the UK in their vaccination programme.
These fluctuations are a prompt to businesses to really spend some time on their currency exchange and look at operations and forecast for the next 6-12 months. Take a good look at the markets, your budget rates, and your pricing. If you know where you are, you’ll be able to plan forward—but make sure you build some flexibility into your planning.
Currency movement is unpredictable, and doesn’t always get coverage in the mainstream media. It important to work with an expert to proactively look at your foreign exchange.
AFEX has been working closely with both importers and exporters during these changing times to assess cashflow requirements and limit foreign exchange exposure and transaction costs. One example is that of a manufacturing company who imports raw materials from Japan, paying in JPY. The company manufactures their product and sells it in the UK (GBP) and Europe (EUR). Through effective cashflow modelling, AFEX was able to ascertain that only a portion of the company’s EUR revenue needs to be repatriated to GBP to cover operating costs, allowing the remaining EUR to be converted directly to JPY. Removing the EUR-GBP-JPY double conversion saved the business tens of thousands per annum.
Foreign Exchange can have a huge impact on the profitability of your business. If you think your current strategy hasn’t been effective enough or if you are interested in exploring ways to improve your FX strategy, there are a variety of products available and working with an expert can help you to find what is best suited to your business.
If your FX is giving you sleepless nights, it’s time to speak to AFEX.
Watch our Business Bites webinar for more information or speak to Alex Harden at aharden@afex.com | +44 (0)20 3973 5854, our FX specialist at AFEX. For more information about AFEX, please visit www.afex.com
© 2021 Associated Foreign Exchange, Inc. All rights reserved. 2021/152
This article has been prepared solely for informational purposes and does not in any way create any binding obligations on any party. The information provided here should not be construed as providing advice or recommendations of any kind. You should use your independent judgment and consult with your own independent advisors in evaluating whether to enter into a transaction. No representations, warranties or conditions of any kind, express or implied, are made in this document.
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