Implementing a robust strategy to manage currency market fluctuations is now more critical than ever as the UK’s departure from the European Union (EU) looms, a foreign exchange (FX) expert has told more than 60 business leaders at an event in Cardiff yesterday (25 January), organised by the Welsh Government.
Paul Langley, Managing Director of OSTCFX, was speaking at a seminar as part of the Wales Export Forum on managing currency risk. He described how the Supreme Court ruling on Tuesday (24 January), which determined Parliament must vote on whether the government can proceed with triggering Article 50, which starts the formal legal process by which the UK will exit the EU, resulted in a sharp drop in sterling. This illustrated how the value of the pound can change significantly, swayed by uncertainty and specific events.
He also highlighted the startling fact that some 80% of SMEs still haven’t taken steps to hedge their currency risk since Brexit.
“It’s always struck me as odd that a business is required to have insurance to cover its potential liabilities in so many areas. Yet 80% of SMEs that will readily pay these costs will disregard the risk of currency fluctuations, which are inevitable during the course of any year and potentially disastrous at a time like this,” said Langley.
The forum was opened by Mr Ken Skates AM, Welsh Government’s Cabinet Secretary for Economy & Infrastructure. It was the first of two forums hosted by the Welsh Government as Wales prepares for transition from the EU, with the second forum taking place in Wrexham on 30 January 2017.
Langley noted during his speech how recent events such as Brexit, Trump’s Presidency and the economic turmoil in Southern Europe have all led to dramatic fluctuations and uncertainty for the currency markets.
Langley commented: “The only trend here is one of uncertainty, which puts exporters in an interesting position. We are in a business world where a tweet from the President of the United States could have a dramatic effect on the currency markets, where profits could be instantly cut. Every fluctuation in the market has a direct impact on the bottom line.”
Major national and international companies, including EasyJet, Apple and Sainsbury’s, were outlined during the forum as examples of organisations that have been hit hard by the impact of currency market volatility. Whether it be a fall in the pound, a strengthening dollar or increasing import costs, millions have been lost by these well-established companies as a result of a poor approach to FX management.
However, Langley advised that with a robust strategy, businesses can limit the risk of such losses: “There’s a preventative medicine, which involves 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.
“Education is also important. You need to understand the risks and potential strategies available to deal with them,” concluded Langley.
The Wales Export forum aimed to provide an opportunity to bring together companies of all sizes from across Wales and offer an environment to share their exporting experiences and discuss the impact that leaving the EU will have on their businesses.