“Geopolitical developments will continue to be a key focus of attention in the shape of Brexit and the US-China trade tensions, not forgetting a broader softening in economic activity across the world.”

International payments company, Caxton FX, has released some new data looking into the impact of currency fluctuations in 2018.

With the current level of volatility in the global currency market – with the likes of Brexit, and the ongoing trade wars between China and the US – UK businesses have been subjected to around £12bn in currency risk, Caxton FX has reported.

“The impact of a 5.3% shift in exchange rates for these countries equated to more than £12bn that would have been recorded as either a loss or gain on many UK businesses balance sheets, depending on their currency exposure and timing of FX trades.”

Last year, the Pound saw a 5.3% move against the Euro, with a high of 1.16 in April and a low of 1.0985 in August. The UK trade value from the imports of 12 EU countries was listed at £227bn for 2018.

Due to the volatility of the market, businesses are finding it increasingly difficult to judge their timing when considering how to secure the best value for money with their international payments.

Caxton FX stated: “The impact of a 5.3% shift in exchange rates for these countries equated to more than £12bn that would have been recorded as either a loss or gain on many UK businesses balance sheets, depending on their currency exposure and timing of FX trades.”

“As a net importing country, the UK is vulnerable to any depreciation in the value of the Pound—especially in the current climate of Brexit uncertainty.”

They continued: “Variations in home and foreign currencies can work in a company’s favour, but they also pose a huge risk of wiping out any gains that can seriously impact their bottom line.”

“Market data proves that currency swings can have a big impact on profitability and forecasting for many businesses,” Rehan Ansari, head of risk management and FX derivatives at Caxton FX, pointed out.

“In 2017, the US dollar and Renminbi fluctuated at around the same level as 2018 against the Pound. The Euro, however, saw a significant move of 10.75%, which equated to more than £24bn on EU imports valued at £223bn, doubling the amount for that year.”

Delving more deeply into the statistics to highlight how true Ansari’s statement is, Caxton FX has cited China and the US as examples where the numbers have suffered.

The UK received 9% of the country’s total good from China (£43.9bn in value) in 2018 with the Pound proving to be especially weak for the first half of the year when stacked against the Chinese Renminbi. Trading was at its lowest of 8.4788 in June and highest in October at 9.1705. This means that there was an 8% shift in the currency market fluctuation—a value of £3.5bn.

It is a similar story with the US (statistics including Puerto Rico), with imported UK goods in 2018 values at £41.9bn—8.6% of the total. There was a 13% swing valued at £5.5bn.

The Caxton FX report said: “In 2017, the US Dollar and Renminbi fluctuated at around the same level as 2018 against the Pound. The Euro, however, saw a significant move of 10.75%, which equated to more than £24bn on EU imports valued at £223bn, doubling the amount for that year.”

“Though trading ranges were narrower in 2018 than a year before, markets are likely to be increasingly volatile throughout 2019.”

Understandably, such fluctuation is a huge point of concern for UK businesses, particularly as the likes of the Brexit date looms ever closer—thus far without any kind of resolution.

Caxton FX has put together the following recommendations for helping to mitigate the currency risks:

  • Speak to an FX specialist to build a currency risk management strategy.
  • Make sure to set your budget rate(s).
  • Monitor the market—perhaps investigate signing up for insights from the experts.
  • Look to hedge your exposure to allow maximum flexibility.
  • Most importantly, understand your full exposure in foreign currency.

Michael Brown, senior markets analyst at Caxton FX, said: “Though trading ranges were narrower in 2018 than a year before, markets are likely to be increasingly volatile throughout 2019.”

“As a net importing country, the UK is vulnerable to any depreciation in the value of the Pound—especially in the current climate of Brexit uncertainty,” Ansari added. “Whilst it’s difficult to predict currency exchange rates, businesses can mitigate currency exposure to risks by implementing a simple hedging strategy that offers protection against adverse price movements.”

Brown concluded: “Geopolitical developments will continue to be a key focus of attention in the shape of Brexit and the US-China trade tensions, not forgetting a broader softening in economic activity across the world.”

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