by Simon Hilton, senior foreign exchange consultant at World First and official Expat Focus foreign exchange partner
One month into 2015, and we’ve already seen enough volatility in the currency markets to last a year. However, though the first month of the New Year has been a turbulent one, it may have worked in your favour – especially if your business is involved in importing goods from Europe – as the pound has hit fresh highs against the euro.
The European Central Bank’s long awaited decision to announce a plan worth around EUR1.1trn to purchase assets in a bid to create inflation and stimulate demand in the Eurozone is long overdue, and it was the expectation of the announcement that caused a broad sell-off in the European single currency. At the time of writing, the euro is down 6% through 2015 already.Having endured a rocky start to 2015, there could be further pain on the way for the euro as the year rumbles on. With elections aplenty in the EU – Estonia, Malta, Finland, the UK, Poland, Denmark, Portugal and finally in Spain – plus a Catalan referendum on independence, and we have the makings for some serious ballot box driven volatility in the coming months. The euro could be weakened further, and this could provide succour to those looking to do business in the Eurozone, with their money going further. That said, euro weakness is not good news for those businesses exporting goods, with their goods becoming more expensive and less attractive to foreign investors.
In the first month of 2015, we’ve seen the rise and rise of the pound against the euro, with GBPEUR hitting its highest level since March 2008. At the start of February, the rate was at 1.334; at the start of the month it was down at 1.2824. In just a month, the euro has lost over 4% against the pound. A year ago, a pound bought you €1.20. At the time of writing, it’ll buy you €1.33 – that’s an increase of 10.8% and the highest it’s been in nearly seven years. For a business purchasing £50,000 worth goods in Europe, last year they’d have been able to get €60,000 worth; now they could buy €6,500 more.
Another big bit of news in January involved the Swiss franc. By cancelling the floor in EURCHF that limited the value of the Swiss franc from breaking the 1.20 level, the Swiss National Bank ended a 3½ year monetary policy experiment. In the space of two days, GBPCHF dropped from 1.55 to 1.31 (an 18.3% drop) and USDCHF from 1.02 to 0.86 (an 18.6% fall). For many economists, it was the largest currency move they have ever seen.
The US dollar is tipped to outperform most others throughout 2015, and it’s certainly got off to a good start in January. USDEUR started the month at 0.8235 and ended it at 0.8855 – an increase of 7.5% and worth €12,400 more on a $200,000. USDCAD is up from 1.16 to 1.27 (a 9.5% increase), USDAUD is up 5.3% and USDGBP is up 7.6% – which means that UK SMEs are losing out when they import goods from the US. However, confidence in the dollar has been slightly dented by falling average wages, which shows the US economy still has some way to go.
Elsewhere, the Australian dollar has rallied – AUDCAD is up around 4.2% in January, with AUDNZD up 2.1%. Japanese yen also had a good January, up 8.7% on the euro and 3.7% on the pound. The Canadian dollar has been the worst performing currency in the past month following a surprise cut in interest rates and persistent weakness in oil markets.
It’s been a volatile start to the year, and SMEs will be keeping their eye on the markets to make sure they don’t lose out. By fixing their exchange rates in advance and exploring hedging options, they may be able to reduce their risk.
World First transacted over £4.7bn for their 40,000 clients in 2012 and have a 3A1 credit rating from Dun & Bradstreet – the highest possible rating for a company their size. As well as tailored hedging solutions designed to protect you from adverse market movements, they also offer excellent service. Winner of the Client Focus Award at the 2012 National Business Awards, they provide personal service with a dedicated dealer, and a regular transfer service, which is perfect for mortgage or rental payments.
