Forex: 200 days on from Brexit, getting the right advice is more important than ever
When a currency expert tells you that getting the most out of international payments is more about attitude than anything else, you might wonder what you’re missing.
When they say it during one of the most remarkable and, at times, unrelenting periods for international business in modern history, you tend to sit up and pay attention.
With more than 200 days under our belts since the UK left the European Union, and with the disruptive effects of the global pandemic starting to wane, business owners, CFOs, finance directors and other financial professionals may finally have the chance to take stock of the lessons learnt from the turbulence, uncertainty and opportunity thrown up by such a volatile and unanticipated combination of circumstances.
From dynamic start ups to global corporations, nowhere have those lessons been more dramatic than when it comes to international payments.
Two-headed beast
It would be absurd to pretend that the full impact of Brexit has yet been felt thanks to the dominating role played by the global pandemic - particularly when it comes to recent rate movements within sterling, euro and the dollar.
“The swings of March 2020 were the largest that I’ve ever seen, even compared with the referendum result” says Reece Dye, head of corporate clients for Clear Currency.
“Brexit was Britain and sterling focused, while this was a global affair presenting systemic pressures.”
Before Brexit, GBP/EUR had been trading above 1.40 before crashing after the referendum to near parity. The pandemic saw a 12 per cent drop off in one month.
“Everyone has been in survival mode. Once we know we’re out of the worst of the pandemic, any business that has been holding off on particular projects or investments will want to press ahead, because if not now, when?” asks Dye.
“This is the time when businesses need to protect their profit margins, they need fixed prices but understandably haven’t got the confidence. They want consistency, but can’t overhedge. Many are leaving their exposure vulnerable to market volatility, which may or may not work in their favour.”
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But while uncertainty has been and remains a big part of the discussion, in many ways it has always been thus.
In any given year over the last decade, average percentage movements for currencies has been around 8 to 10 per cent but that isn’t always factored into budgeting.
“In general the market will always experience volatility cycles in any given year,” Dye adds. “Remove Brexit and the pandemic and you’ll still see huge shifts due to, expected or unforeseen, geopolitical or economic events.
“The G3 currencies of sterling, euro and dollar have proven to be as volatile in the last two years as any emerging market currency and yet its common for businesses not to factor in the possibility of large price fluctuations, positive or negative,” Dye adds.
“Traditionally, businesses have locked in forecasts annually and let them run. But in the current market environment you have to look more closely and we now have clients looking at their budgets quarterly.
“Many companies still don’t factor FX into everyday business, including integral parts such as long term projects, overseas offices or repatriation. FX comes into play with all of those scenarios.”
Perhaps then, one of the biggest lessons learnt is a simple one - to be more aware of currency risk.
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Navigating the post Brexit, post pandemic world
“Our responsibility to our client is to give both sides of the argument. If you need GBP/EUR to be 1.15, how detrimental is it if it goes down to 1.11, and how do we avoid that?”, Dye says. “If we are able to achieve above that cost price, what is our action to capitalise?
The job of Clear Currency, he asserts, is to delve into the mechanics of a client’s businesses - to gain the deepest possible understanding of their needs, cycles and risk appetites to build an ongoing, active currency strategy.
“Using an FX partner has become more and more important for us”, says Colm Devine, head of business development for invoice financing specialist Accelerated Payments.
“Thanks to Brexit, more clients have asked if we can support markets outside of the EU. Companies are starting to look to Australia, for example, especially with the new trade deal, so now they’re invoicing in Australian dollars.
“Because we have a relationship with Clear we can support our clients with funding for those markets. Flexibility and responsiveness has been key for us as we know we can do that business because of the currency conversion in the background.”
With economies recovering from the peak of the pandemic, Accelerated Payments is now seeing a large uptick in volume too. “Lots of companies are now coming to us with increased requirements because of supply shortages and increases in prices,” Devine says.
“We see demand skyrocketing, so we are staffing up and looking for additional resources within the UK.”
“Finance professionals and business owners have enough going on without having to become currency analysts, so we encourage our clients to lean on our expertise as much as possible,” adds Dye.
“It’s always worth having that chat. The more informed you can be, the more effective the decision or the outcome will be.”
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Clear currency works with thousands of businesses to provide currency expertise and foreign exchange advice. We remove the complexity, provide full transparency, and have a dedicated account manager on hand every step of the way. Clear Currency is authorised and registered with the Financial Conduct Authority to provide payment services. Request a currency quote here.