From 2003 to 2008 I was the Group Treasurer of Travelex. At the time the largest non bank foreign exchange provider in the world. I looked after hundreds of banks and trading lines, covering hundreds of currencies all over the world, providing FX solutions to tends of thousands of our global business customers.

Richard Jones, Managing Director Pilot Fish

My next role was the Finance Director of a large retail group that included purchasing and importing of millions of pounds of overseas goods each year. I was experiencing FX from the perspestive of a customer and put my Travelex experience to use. At the time April 2008 the USD/ GBP exchange rate was USD 2.0/ GBP. I remember this well because I took out forward hedges to protect our budgets covering about $USD5m of purchases. The following April 2009, the exchange rate had collapsed to USD 1.46/ GBP. If I had not hedged that would have cost the business approx £0.9m over the year.

Since then the pound has dropped further in value and over the last 12 months has been trading at about 1.24- 1.34.

It is easy to be complacent when rates are ‘relatively’ steady. But changes of 10% can still happen quickly and the question to ask is can your budget withstand a 10% swing on costs.

There is a lot of uncertainty at the moment particularly the US Elections, global conflicts and inflationary pressures so now is not the time to be complacent and the time to look at whether you should have a hedging strategy in place and if your FX provider is providing you the best service.

I have recently been discussing FX hedging strategies with Karen Grewcock of MoneyCorp and it reminded me of all the different strategies that could be used spot contracts, forwards, stop loss orders, limit orders and more. One such strategy I thought worth sharing was a ‘layered approach’ as MoneyCorp refer to it.

A layered hedging strategy can help to reduce volatility but also leave you room to take advantage of any favourable movements in rates. In summary it means you cover a percentage of your long term expsoures and then increase that percentage the closer you get to the date of purchase. Shown in the image.

In addition MoneyCorp have summarised the market forecasts for FX rates and shared that with me (period Sept 24 to Sept 25). For GBP/USD their anaylsis forecasts a range of rates 1.20 to 1.41 over next 12 months, for GBP/EUR the forecasts range from 1.11 to 1.23. These are big enough movements to cause significant impacts on your trading results if they go the wrong way. (I need to say that the commentary does not constitue financial advice or a forecast but is a summary of market predictions).

Usually Pilot Fish is talking about the debt solutions we can source. We can help with Foreign Exchange also and work with partners like MoneyCorp to put in place useful strategies or just source great FX rates for your business needs. I would like to thank MoneyCorp for their input into this article.