2016 was unquestionably a year of the unexpected. The UK’s vote to leave the European Union (EU) and Trump’s US Presidency victory were just two shocking moments that triggered currency risk and turbulence in financial markets the world over.
In light of these unsettling events, a foreign exchange (FX) expert is warning businesses to not remain complacent when it comes to mitigating currency risk, as 2017 will undoubtedly bring more mayhem to the currency markets in particular.
‘It would be unwise for businesses to remain unaware of the impact volatile currency markets have on their bottom lines. If 2016 hasn’t been a lesson in the need to protect themselves from foreign exchange fluctuations, I don’t know what would be,’ comments Paul Langley, managing director of Godi Financial.
A number of key events are lined up for 2017 that could cause further turbulence in the currency markets. These include Trump’s inauguration in January; Theresa May’s planned triggering of Article 50 by the end of March; elections in France, Germany, Iran, South Korea and Hong Kong; as well as China’s Communist Party congress. All episodes will have significant consequences for each country, with many having global implications.
Langley, who spoke at the Gorwel independent think tank event in Cardiff last month (November 2016), which discussed the implications of Brexit for Wales, highlighted that in his experience, only around 20 percent of SMEs in the UK have changed their hedging strategy with the majority not hedging at all since Brexit.
The immediate effect of the vote to leave the EU saw the British pound fall by eight – ten per cent, which had a significant impact on businesses that import or export.
‘Political risks are often aligned to currency risk. I have been involved in the currency markets for the past 35 years, going through Black Monday, the fall of the Berlin wall, The Gulf War, 9/11 and I don’t think I have seen more uncertainty than in the months following the Brexit vote,’ says Langley.
‘Following the turmoil of 2016 and with what’s on the cards for 2017, businesses need to take action now to establish a solid FX strategy or face the consequences of potential financial loss simply from a lack of planning against currency risk.’