Uncertainty is the name of the game at the moment – no one seems to be sure when, how or if Brexit is happening, and the rumours are flying fast. This uncertainty has translated to the currency markets, and the weak pound has been hitting headlines. For exporters, however, this is good news – and with the right currency strategy, you can use Brexit to boost your profit margins.
what’s happened in the currency markets
Since the result of the referendum was announced, we’ve seen big movements in exchange rates – sterling slid dramatically, reaching its lowest against the dollar for 31 years. With political unrest in the UK and an uncertain timeline on Brexit, everyone is expecting volatility in the currency markets to continue for some time.
What this means for exporters
British exporters stand to gain from the pound’s weakness.
Across industries, exporters are profiting hugely from the situation, and in the days since the vote, we’ve been receiving unprecedented levels of phone calls from businesses looking to lock in forward contracts at the current exchange rate.
The weakness in sterling is particularly good for UK exporters because it makes UK goods cheaper for overseas buyers – and if you’re listing your prices in foreign currencies, it can significantly boost your profit margins. Businesses that are earning in foreign currencies, particularly US dollars, will also be able to benefit.
Since the vote, we’ve seen exporters of all sizes profiting from the drop in sterling, from film production firms that receive dollar funding and pay for filming overseas, to small electronics exporters selling through Amazon and eBay.
Get a strategy in place
So how do you take advantage of the currency climate as it is? With uncertainty in the markets, the best option is to set up a currency strategy that allows you to lock in favourable rates now. The tools below outline some of your options.
Currency tools – a quick guide
There are a range of currency hedging tools available to you, each with its own benefits. The simplest is the on the day or single payment trade, for when you want to transfer immediately. If you’re watching the markets and notice that the pound has dropped to give you a good rate, you can use this option to make a transfer right away.
Forward contracts offer you a good rate in the future, and make it easier for businesses to plan ahead – you can use these to lock in today’s rate and complete the payment at a later time. If you know how much you’ll receive in foreign currency over a period of time, you can lock in a rate for the full amount, protecting your profit against any recovery in the pound. Right now, this is particularly good for those exporting to America, as they can take advantage of the pound’s current weakness against the dollar.
Limit orders are another option. With this tool, you can nominate an ideal exchange rate and your transaction will be automatically completed if and when this rate is reached in the market. For many businesses, using limit orders in combination with other tools allows them to wait for a perfect rate whilst making any necessary transfers in the short term.
No matter what you choose, it’s best to seek out expert advice, as the best currency strategy for your business depends on a number of factors, including your appetite for risk. An expert will help you to assess this, and help you understand how to get the best out of this volatile post-Brexit situation – no matter your political leanings, everyone can get behind an improvement to their bottom line.
Alex Edwards is head of the dealing desk at UKForex, where he helps businesses of all sizes to defend themselves from currency risk.