As we decided to include the possibility of this in our ‘Five Looming Dilemmas for 2020’ series, I hadn’t thought that by the time we came to produce the article we would be right in the middle of the event! Many of you will be under local lockdown, or back to working-from-home due on the latest government advice. One of my favourite authors, Adam Kay (best known for the book This is Going to Hurt), summarised it quite well in a recent tweet. Adam said, “I can’t believe the government’s plan of keeping cases down by telling us to go back to work and eat at restaurants as much as possible hasn’t worked.” I feel as though the UK response has appeared muddled at times. History and understanding For those who have been living in a cave, or recently arrived in 2020 via time machine, Covid-19 is a strain of Coronavirus that originated in China in 2019. Its highly contagious nature has resulted in a rapid spread throughout the globe and current statistics show it has infected over 38m people, with an excess of 1m deaths. The effect on consumers and world markets was initially one of panic, with toilet roll less prevalent than diamonds for the first time in recorded history, as supermarket shelves were stripped bare. Stock markets initially tumbled, with the FTSE100 dropping from around 7,400 in February to a low of around 5,000 in March, a near 39% drop. We currently sit around 5900, still 22.5%
Given the uncertainty right now, businesses need to have some idea of a consensus (mean forecast) and a potential worst-case (high or low forecast) scenario in terms of FX rate. We have collected the views of over 40 financial institutions to articulate the high, low and mean forecasts for the next 12 months in an attempt to provide this information to businesses. As you will see, the forecast still predicts a high degree of uncertainty based on the differential. Download the PDF report for the details: Infinity_FX Forecast August 2020 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 volatility assessment to understand the impact of a significant FX rate Credit terms to ensure efficiency for cashflow when hedging currency (subject to approval) FX pricing to determine your current cost of your current provider vs Infinity International rate Fill out the below form to receive an obligation free FX review: Request a FREE FX Review We’re here to cut through the clutter and industry jargon to provide you with relevant information so you can build your understanding of foreign exchange markets.
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
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
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
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?
By Jamie Jemmeson ACSI, MSTA at Infinity International Introducing the 4 questions you should start with... Prime Minister Boris Johnson announced recently that non-essential shops in England can reopen from 15 June, rates of infection permitting. This now puts businesses in the unenviable place of second-guessing what sentiment and confidence may look like and the resulting sales and inventory requirements. Business conditions remain fragile, despite a loosening of restrictions, it is unlikely to represent “business as usual” as we all continue to adapt to the ever-changing environment. With many still questioning whether a “second wave” emerges or not, makes it incredibly difficult to answer those FX hedging questions of “how much do we hedge; how long do we hedge for and when?” The key question to answer and understand is “what is the purpose of business hedging” and may now be the time as we ease out of this unprecedented crisis to re-assess some previously held views/policies. We have complied a few questions that you might wish to consider before executing a FX hedge or developing a hedging policy in these conditions. Over the next few weeks we will unpack each of the 4 questions, which are: 1. Understand your FX exposure Has your FX exposure changed – are you now using different suppliers/has your customer base changed focus geographically? Do you have line of sight on your currency requirements and what are the terms associated with your upcoming invoices? 2. What impact will hedging potentially have on the
By Tyler Betts: FX Risk Manager at Infinity International This psychological prejudice where a person believes themselves to be better and more competent than they actually are, was first identified in Kruger and Dunning’s 1999 study “Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments“. To explain this in simple terms, I can use an example from a personal experience in January this year when I joined a skiing trip with a friend to Austria. This friend had never been to the mountains before, but had spent two hours at the Milton Keynes Snow dome and watched a few instructional videos, in addition to purchasing all the top brand skiing equipment. In his mind, he was 100% confident that he was going to be an expert. His actual experience and ability level was zero. It will be no secret to those of you who ski that this overconfidence was premature. The first day consisted of him continually falling over on the baby slopes and moaning “my instructor is awful”, resulting in me taking over instruction. He was injured within 10 minutes of my ineffectual teachings and ended up with minor ligament damage. At this point he was ready to go home, but with a couple of days rest and reality setting in that good skiing requires a high level of competency, he hit the bottom of the Dunning-Kruger Effect curve with a total loss of confidence. He humbled himself and got back