Countering currency volatility during the coronavirus

As the world went into lockdown fears for the global growth outlook triggered a surge in demand for safe-haven currencies.

By mid-March the Pound had plummeted to a 35-year low against the US Dollar, while the GBP/EUR exchange rate headed towards parity, touching 1.0533.

Both pairings have since recovered some of their losses, and the Pound is on a much firmer footing than it was just a month ago, but with the crisis ongoing further currency volatility is likely.

Such significant FX movements are putting additional pressure on businesses who are already struggling to cope with the impact of an unprecedented international crisis.

For example, purchasing $50,000 of raw materials from the US would have cost £38,183 in early March, but less than a fortnight later that same purchase would have cost £44,033 – close to £6,000 more.

During this period of heightened uncertainty keeping costs stable and being able to budget effectively is more important than ever, which is why it’s essential to take a proactive approach to your international payments.

This means exploring alternative FX providers and finding out more about the different services available to you.

Some of the services you may want to consider include:

Forward contracts - Good for future international payments

Budget effectively and protect your funds from negative market shifts by fixing an exchange rate for up to two years in advance of making a transfer. Fixing a rate in advance would mean that you’d miss out if the market suddenly strengthened, but you’d be protected if the exchange rate dropped.

Limit orders – Great for targeting a rate higher than the current market level

If you need to make a transfer in the near future and think the exchange rate might strengthen, you can use a limit order to target a rate higher than the current market level.

Once you’ve set a rate your transfer will occur automatically if the market hits that level.

Stop-loss orders – Ideal for controlling the risk of a sudden drop in the exchange rate

If you don’t need to move your money right now but are concerned the exchange rate could fall, use a stop loss order to set a worst-case. You can wait for conditions to improve but know your transfer is protected if they worsen.

Buy currency in advance – Good for taking advantage of a positive rate movement

Some currency providers give you the option to purchase currency in advance and hold it in a digital wallet until you need it.

This means you can take advantage of a positive rate movement and speed up future transfers.

Rate alerts – Perfect for targeting exchange rates

With a rate alert you set the rate you want to achieve and your currency provider will let you know by text or email as soon as the market moves to that level. You then have the option to make your transfer or set another rate alert. You can set multiple exchange rates at one time, and there’s no obligation to transfer if your rate is achieved.

Market insights – Good for timing your transfer effectively

Picking the right time to move your money can make a big difference to how much you receive, and staying on top of the latest currency news is essential if you want to plan your transfers effectively.

If you want to protect your business from further volatility in the currency market the first step is to talk through your FX exposure with a leading international payments provider.

They’ll keep you informed of the latest market movements, explain the different options available to you and help you develop the right currency risk management strategy for your business.

Many countries around the world are finally starting to see the light at the end of the tunnel of uncertainty that is the coronavirus, but the rest of 2020 still promises to be challenging as we adjust to the legacy of the virus.

However, no matter what trials lie ahead, having the support of the right FX partner will make it easier to protect your profit and maximise the potential of your international payments.

For more information contact our Corporate Consultant Paul Warrilow.

T: +44 (0) 7957 530297

E: paul.warrilow@torfx.com