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.
That’s the view from a foreign exchange (FX) expert who addressed the local business community at an event at Cardiff Business School.
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.
Mike Rees, head of office at Bruton Knowles added: “Danny Corrigan offered an upbeat view which did much to counter many of the uncertainty issues. In particular, whilst he was doubting the likelihood of an entirely free trade agreement with the EU, the real losers in that eventuality would be Germany.
“The fall back was World Trade Organisation tariffs but which he expected to be countered by falling prices, given the opportunity for the UK to trade with a very much wider market.”
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.
Mike added: “Bruton Knowles was delighted to sponsor such a well-attended event and which provoked a considerable amount of discussion.”