For the last year, we have seen dramatic fluctuations in the price of the pound against the dollar. Those fluctuations included highs of 1.37, lows of 1.03 (which marked a 37-year low), and everywhere in between. From high point to low point, the swing is nearly 25%, and there are very few businesses that can afford a 25% increase in their cost base without passing it on to their customers – many of whom are strapped for cash and facing a cost-of-living crisis.
Why the swing?
In short, extraordinary events have arrived in such a multitude that they appear remarkably ordinary. Formerly once-in-a-generation events such as war in Ukraine, Covid, Brexit and a global financial crisis have all taken place in the last decade.
Each one of those events has burdened businesses with yet another year of uncertainty. Profit margins have been wiped out, there have been significant increases in prices, and a very ominous outlook from economic experts has led many businesses to wonder how they can improve. They are desperately searching for ways to cut back on costs, capitalise on uncertainty and get ahead of their competitors.
The value of the pound has been a major contributor to those businesses’ peace of mind (or lack of it).
What can businesses do in response to a volatile pound?
It’s all about a change of attitude.
Previous strategies and attitudes to foreign exchange are outdated, unrealistic and ineffective. Using spot contracts and leaving budgeted exchange rates in the unsteady hands of the markets has never represented more of a risk to business than today.
Foreign exchange – which historically has taken a back seat in finance departments and the boardroom – has moved closer to the forefront. Businesses must adapt to the new reality in foreign exchange rates, mitigating their risk and giving them more control of their bottom line.
There is, of course, an almost infinite number of foreign exchange products and solutions available, from the traditional to the new and inventive. The right product or range of products will depend very much on the individual need and risk profile of any business, not just its sector, size or turnover.
It’s important to take time to look holistically at the business and its attitude to risk. That way, we can help you to establish the best strategy. A 25% currency swing like we have seen recently can wipe many businesses out, and managing the risk correctly is more important now than ever.
Most finance teams are fighting two prominent FX battles; the external forces of volatile markets and the internal battle of appeasing or convincing the board that ‘it’s under control’. Doing what you’ve always done is no longer a valid strategy.
A fresh look at FX strategy is often needed where you need access to the right data, intelligent reporting and the confidence that your FX partner really understands your business and what makes you and your risk appetite different.
If you want to take control of your company’s FX strategy, our currency specialists at Expense Reduction Analysts can help you achieve more than just great rates and lower fees. Using the innovation of wealth management and applying it to the world of FX, we are now able to provide unique insights that help build bespoke strategies that meet the unique needs of your business. The best news is that our analysis is both free and non-invasive. We can help you to identify opportunities and establish a path to managing your FX risk.
We will be happy to deliver quick results that will help you to start managing the FX risks in volatile markets correctly. Talk to us today.