Brexit UK-EU Trade Talks: How will sterling be affected?

  History and understanding During the Brexit negotiations in 2017, the UK & EU agreed that trade negotiation could only start after the UK's withdrawal because such negotiations could not happen when the UK still had a veto capability in the EU. For this and other reasons, a transition period after Brexit day (31 January 2020) was defined to allow those negotiations.  The transition period started on the 1st of February 2020 under the withdrawal agreement.   The deadline is the 31st December 2020, a deadline which can be extended for two years, although the British government has declared that it will not apply for any such extension. In 2018 the UK conducted 49% of its trade with the EU, 40% with the Rest of World and 11% with countries that have EU trade agreements.   Figure 1: UK % of Total Trade 2018 Source: Department for International Trade / BBC https://www.bbc.co.uk/news/uk-47213842   Potential scenarios There are various types of deal frameworks available in these negotiations, with the UK said to favour a Canada style arrangement called the Comprehensive Economic and Trade Agreement (CETA). CETA provisionally came into force between the EU and Canada in 2017, this is a free-trade agreement removing 98% of the pre-existing tariffs between the two areas. A CETA agreement between the UK and EU would aim to get rid of most, but not all, tariffs between the UK and the EU, this does not cover anything in services, particularly financial services, which is key to negotiations

2020-09-17T15:22:25+00:00September 17th, 2020|

A Double Dip Recession or V Shape Recovery, How Will Sterling Be Affected?

By Jamie Jemmeson ACSI, MSTA at Infinity International Background The UK officially entered a recession following the Q2 GDP release in early August - a recession is defined by two consecutive quarters of negative growth. Whilst a recession was not unexpected, the position of the nation’s economy in comparison to its peers is somewhat of a concern. The official reading saw UK Q2 GDP contract by 20.4%, a record low. Compounding the concern for the UK economy is that this is the largest contraction for Q2 GDP amongst its peers in the G7. State of play The UK has not only suffered the highest number of COVID deaths in Europe, with 41,499[1] deaths at the time of writing but is also suffering from the deepest recession in the G7. This is not coincidental; the figures are intrinsically linked. The surge in deaths due to late lockdown dented economic confidence resulting in the dire GDP figures reported. Please don’t emigrate to Japan just yet – it’s not all doom and gloom. The monthly UK GDP figure, as opposed to quarterly detailed above, is likely a more appropriate reading of recent economic activity.  Given the fluid changes in guidance, travel corridors and easing of restrictions we have seen over the last few months, the figures are certainly more upbeat. The monthly figure for June reported an increase of 8.7% – a record single-month increase and slightly stronger than forecasts suggested, with May’s GDP figure also revised higher. This trend has not

2020-09-03T08:20:03+00:00September 2nd, 2020|

5 Looming Dilemmas of 2020 & the FX impact

By Jamie Jemmeson ACSI, MSTA & Tyler Betts, FX Risk Manager at Infinity International “You can't connect the dots looking forward; you can only connect them looking backwards. So, you have to trust that the dots will somehow connect in your future.” – Steve Jobs Steve Jobs’ philosophy of trusting that dots will connect may be very difficult to fathom in this current landscape; but who are we to question the man who created the world’s first trillion-dollar company. Infinity International will be providing content to our clients on several relevant topics covering a variety of possible concerns during these unprecedented times. To do this, we are drawing on our own experience, client feedback as well as the input from others in our network. Last month we covered a series on FX hedging and how this could assist your business in managing the current market volatility. This month we are looking at the topics which could impact on currency and potentially drive emotional decision-making surrounding FX hedging. In this series, we will focus on five key looming dilemmas of 2020 and what this may mean for FX. There may only be one or two ‘trend changing’ events in a normal year, that could significantly impact the direction of exchange rates; however, this year we have seen COVID-19 increase volatility with several other events on the horizon. 2020 has been a rocky road to date, but there are five further topics that could further drive market volatility. Each week we will cover

2020-08-21T09:45:21+00:00August 20th, 2020|

Could the US Dollar Continue to Weaken as We Head Toward November’s Presidential Elections?

By Jamie Jemmeson ACSI, MSTA at Infinity International It was a shock in 2016 when celebrity Republican nominee Donald Trump seized the White House against the odds; that said Brexit and Leicester City's Premiership crowning were also unlikely events. Four years on and President Trump's re-election campaign is looking wounded with his management of COVID-19 and the resulting fallout hurting his chances. Data from Real Clear Politics (RCP), a poll aggregator and news source, shows how his approval rating has slipped since the start of April; the height of COVID-19 which resulted in the loss of close to 20 million jobs at one stage. Fig 1 = RCP Poll Average[1] At the time of writing (24 June 2020), based on RCP betting odds aggregator, Democrat Joe Biden has a greater than 60% probability of winning the race to the White House (see Fig 2). However, ruling out President Trump would be foolish based on his accomplishments previously. However, it would not be a surprise if we see the nation's currency weaken as we approach the election as uncertainty increases. Fig 2: Betting odds[2] What does a Joe Biden win mean for the US dollar? While we recognise that there is a long way to go in the Presidential race, it is worth noting that markets often base value on the balance of probabilities which helps to explain and partly rationalise the reason why the US dollar is on the back foot. Since 1940 there has only been one incumbent

2020-07-29T16:14:21+00:00July 29th, 2020|

Are You Prepared for Brexit Volatility?

We cannot predict the markets, but we can help you navigate them Sterling’s volatility is compounded by three factors, global COVID-19 sentiment, Brexit trade talks and BoE policy. It is worth noting that in the 4 years since the EU referendum we have seen Sterling trade in a large range (circa 36 cents against the US Dollar and 26 cents against the Euro). With the fallout of COVID-19 still unknown, the impacts could be felt harder by some businesses. We have compiled FX forecasts using data taken from over 40 financial institutions in an effort to predict the high, low and mean rates for the next 6 months: covering the phase of negotiations between the UK and EU and the impact of COVID-19. As can be seen, there are large differentials between the high and lows which highlight the potential volatility that could happen during this period as we ride ebbs and flows of progress and setbacks in the forthcoming talks. Download the PDF report for the details: Infinity_FX July Forecasts Are you managing the risk of your FX exposure? Infinity International would be happy to offer a complimentary FX review of your current process to offer a fresh perspective and to highlight any areas that could be made more efficient.  If you would like to organise a time for an exploratory conversation, please leave your details below. The review would encapsulate: Strategy ideation to align FX risk management with your business objectives FX

2020-08-12T10:15:53+00:00July 24th, 2020|

What Facilities are Available to Your Business?

By Jamie Jemmeson ACSI, MSTA at Infinity International A fortnight ago, we published our insight piece on “What hedging tools and what flexibility is right for your business?” in our FX Hedging series. We highlighted what we consider to be some of the salient talking points when deciphering the ideas and products available that could warrant reflection during the uncertain times of coronavirus. Within this FX Hedging series, we published some of the main points and what these could mean to your business in the coming weeks and months as we enter a new phase of life (and businesses) under COVID-19 conditions. This is our final instalment in the series, where we will unpack in more detail “What facilities are available to your business?” If you missed the previous articles in this series, you can catch up: Points to Consider Before FX Hedging in COVID-19 Conditions Can Your Business Identify and Understand its FX Exposure? What Impact Could Hedging Have on Your Business? What Hedging Tools and What Flexibility Is Right for Your Business Towards the start of the coronavirus crisis the Government quickly recognised that cash flow could become a big challenge for UK businesses and swiftly introduced various initiatives such as the Coronavirus Business Interruption Loan Scheme (CBILS) and the Future Fund to try and assist businesses. Whilst they have not escaped criticism, they have helped to ease the burden. It has become necessary for many businesses to reassess their appetite towards risk inclusive of banks, finance

2020-08-12T11:30:22+00:00July 16th, 2020|

What Hedging Tools and What Flexibility is Right for Your Business?

By Jamie Jemmeson ACSI, MSTA at Infinity International In the previous blog we addressed the ‘What impact could hedging have on your business’, where we unpacked some of the difficulties of recognising your exposure and having the ability to accurately forecast during these COVID conditions. Given the current backdrop in the UK, now could be an opportune time to consider your framework for managing your foreign exchange risk and what level of flexibility you require. In short, given the current circumstances does your current approach offer you the flexibility you need? Before addressing the flexibility which various products can provide, it is important to take note why this could be significant in the second half of the year. Concerns of COVID second wave – data from the US is starting to prompt fear of a second wave which could weigh on sentiment and impact currency markets. Brexit “No Deal” re-emerges – the UK have declined on extending the transition deal beyond 2020. Recently PM Johnson stated that the UK would be prepared to accept an Australia-style Brexit trade deal, which is not considerably different to a 'no deal' Brexit. UK monetary policy - The possibility of negative interest rates is still not being ruled out by the Bank of England as a policy tool if the economy takes a turn for the worse. The above factors could have an impact on currency volatility as well as the supply and demand of goods. If this happens, as a business you

2020-08-12T11:41:26+00:00July 2nd, 2020|

Brexit Trade Talks to Impact Sterling in H2

By Jamie Jemmeson ACSI, MSTA at Infinity International UK/EU trade talks seem to be echoing a similar case of déjà vu as Brexit did. Looking back at the timeline we can see a similar scenario from former Prime Minister May’s “Brexit means Brexit” and “no deal is better than a bad deal” to current Prime Minister, Johnson’s “do or die” speech, pushing negotiation right to the limit.  This resulted in a transition deal following the UK’s exit of the EU on 31st January 2020. By the end of the year, both sides need to find ways around their respective differences, reach an agreement and leave enough time to ratify as well as implement the deal in legal text. Looking at what needs to be agreed, the task ahead is enormous, below is a selection of some of the subject matters that need to be in the agreement: free-trade agreement fishing waters agreement security co-operation legal jurisdiction financial sector alignment and Northern Ireland border complications It cannot be ignored that the COVID-19 pandemic has complicated an already tense process. Leaders have been focused on the pandemic as they manage both the economic, health and social fallout. Brexit talks were reduced to video conferences, reducing the opportunity for rapport building often critical to diplomacy. The deadline to extend the the transitional agreement beyond December, expires at the end of June. The UK has rejected the prospect of an extension and has made clear. Unlike other targets, this was self-imposed as it was

2020-08-12T11:46:32+00:00June 25th, 2020|

What Impact Could Hedging Have on Your Business?

By Jamie Jemmeson ACSI, MSTA at Infinity International This week the UK saw the reopening of non-essential retail shops, and while restrictions are being lifted the uncertainty and volatility faced by businesses remains. The current context could be an opportune time to consider the nature of the risk foreign exchange exposes your businesses to, as well as the impact of recent currency volatility, and then, against this backdrop, to re-assess the effectiveness of an existing hedging strategy. We put forward 4 questions in our introduction to the series “Points to Consider Before FX Hedging in COVID-19 Conditions”. Last week, we tackled Question 1:  “Can Your Business Identify and Understand its FX Exposure?”. This week we are going to unpack Question 2: ‘What impact could hedging have on your business?’ FX risk and the business impacted Foreign exchange (FX) poses a risk to any business with an international trade exposure, the question is how does your business manage this risk (through hedging or by other means)? The objective of hedging is to achieve certainty through fixed foreign exchange rates which can in turn protect a positive target margin. Under COVID-19 not only have many businesses experienced changes to the way they operate but many currencies have traded to extremes; for example, during the month of March, GBPUSD was more 13% lower than where it started the year as COVID-19 fears escalated. Payments to international suppliers Has the business changed its international suppliers during COVID-19 and would that allow netting of currency exposure?

2020-08-12T11:54:42+00:00June 18th, 2020|

Can Your Business Identify and Understand its FX Exposure?

By Jamie Jemmeson ACSI, MSTA at Infinity International Last week, we published an article on “Points to Consider Before FX Hedging in COVID-19 Conditions”, where we highlighted some of the talking points when considering either implementing a new FX policy or adapting your current hedging strategy. We understand that perhaps now more than ever, risk management is a priority for businesses, which is why we will go into detail answering the 4 questions we posed, assisting business to prepare in the coming weeks and months as we re-enter the markets under COVID-19 conditions. This week we are going to unpack Question 1 in more detail: Understanding your FX exposure. Has your FX exposure changed? Are you now using different suppliers/has your customer base changed focus geographically? Depending on the sector that your business operates, your FX exposure may have either decreased or increased dramatically as result of COVID-19. Before instructing any new FX hedges, you may consider whether demand has increased due to a sudden increase due to situational demand (for example toilet roll) and whether this demand is likely to continue once supply lines and/or trends change. How has this affected your currency requirements and what does this look like over the next few months? Have you changed where the business has sourced its goods? For example, have you adapted your supply chain, sourcing goods from Europe instead of Asia? Has this changed the currencies which you are exposed to? If yes, have you considered the underlying factors

2020-08-12T11:57:51+00:00June 10th, 2020|