Charting a safe financial course in an era of policical turbulence
The Wales-based foreign exchange (FX) company OSTCFX has relaunched as Godi Financial to establish a new brand identity that “more strongly reflects its end-to-end international trade offering”.
This offering includes FX risk management, currency exchange, finance and education.
The firm, part of the OSTC Group, a leading global proprietary trading company, has been helping businesses to understand and minimise their FX exposure over the past five years. It has now changed its name to Godi, derived from the Welsh word Codi, which means rising up or blooming, reflecting both its roots in Wales and its global reach and outlook.
The birth of Godi comes just when SMEs are most in need of sound, expert advice about how to manage uncertainty in the context of global trade. Well-prepared businesses can protect themselves from the effects of currency fluctuations between a deal being agreed and the goods being delivered.
As Godi’s managing director Paul Langley explains: “There’s a preventative medicine, which involves making foreign exchange a fixed cost to your business, hedging as far forward as you can and limiting your potential liabilities to numbers you are comfortable with.”
According to Langley, businesses that make FX planning part of their long-term strategy put themselves in a far stronger position than those that leave currency matters to the market.
The UK’s decision to exit the European Union (EU) – and more recently Theresa May triggering Article 50 – as well as US President Donald Trump coming into office have been some of the biggest events that have caused volatility in currency markets.
Yet there is much more change to come over the next few weeks, months, and indeed years, that will trigger further volatility in the FX markets.
“Many more may be waiting for clarity in the global economy, but with rapid market fluctuations – and politics proving impossible to predict – simply sitting on your hands and not taking action is unwise,” said Mr Langley.
Godi Financial has identified five factors likely to trigger further turbulence in FX markets: Snap general election Prime Minister Theresa May made a shock announcement on Tuesday, April 18 to hold a UK general election on June 8, 2017. Her reasoning to call for the snap election is to ensure certainty, stability and strong leadership following the momentous EU referendum.
“Despite repeatedly saying she wouldn’t, Theresa May’s announcement to hold a general election will be sending Britons to the polls yet again,” said Langley.
“Sterling rallied across the board as she made the surprise announcement, with the pound reaching a five-month high. Her out-of-theblue move is a clear example of how financial markets can be caught offguard and so preparation is crucial during such uncertain times.” French elections As one of the biggest and most significant economies in the EU, France is a key player in European politics. The French election will take place in April and May of 2017, with the first round of elections that were held last Sunday (April 23) ensuring that Marine Le Pen (Front National) will go head-to-head with Emmanual Macron (Independent).
Langley commented: “If Brexit taught us anything, it’s that polls cannot be relied upon. A new president for France, whoever it may be, will no doubt have a strong effect on the euro, especially as some candidates want to have a vote on France’s membership of the EU, which means the euro could continue on its lengthy dwindling trend.
“There are many moving parts and markets are starting to price in the risk of an upset. Businesses with FX exposure should not only be prepared for the outcome of the elections, but the likely currency market volatility surrounding the event. Planning is imperative.” Syria When US President Donald Trump ordered a missile attack against Syria, it triggered an instant reaction in the markets.
Since then, however, the recent US military action is not being viewed as a signal for deeper intervention in the war that has been ongoing in Syria for the past six years, and markets have stabilised since their initial reaction.
However, Trump’s actions are an example of unpredictability and with this comes market turbulence. Also, Russia’s President Vladimir Putin has said the country will “not tolerate” Western criticism of Russia’s role in Syria – highlighting more uncertainty surrounding Russia-US relations.
But Langley warns that speculation is futile and it is better to plan for every scenario: “For the many UK firms trading in dollars, Trump’s actions and their implications pose real questions to importers and exporters alike. I recommend adopting a robust hedging strategy now.” North Korea Trump’s bold movements don’t stop at Syria. Recent reports show the US President is also putting pressure on North Korea. The relations between the US and North Korea are undoubtedly hostile. This is evident from the erratic regime in Pyongyang, North Korea’s capital, and Trump’s comment that the country has “gotta behave” when asked what message he had for Kim Jong-un, the North Korean leader.
With North Korea’s deputy UN ambassador accusing the US of turning the Korean peninsula into “the world’s biggest hotspot” and creating “a dangerous situation in which a thermonuclear war may break out at any moment”, tensions are running high.
“A rogue state that claims to have a nuclear arsenal is a major concern for any world leader. Geopolitical strains will always impact markets, and such tensions aren’t going anywhere anytime soon when you consider the current political landscape.
“We are in a world where a tweet from the President of the United States could have a dramatic effect on the currency markets, where profits could be instantly cut. Every fluctuation in the market has a direct impact on the bottom line and so businesses need to be protecting themselves against this with a robust FX strategy,” Langley added.
Bank of England interest rate changes
The Bank of England (BoE) has been forecast to increase interest rates sooner rather than later, which could see sterling strengthen. According to independent research consultancy Capital Economics, the BoE could raise interest rates during early 2018.
While interest rates aren’t the only thing influencing currency exchange rates, they can have a significant impact.
“Bearing in mind the major uncertainties over the UK economic outlook, we can’t rule out anything when it comes to interest rates.
“If there is a hike in rates, the pound will strengthen against the euro. This, combined with sterling’s volatility easing in response to the Brexit vote, could spell a positive bout for the currency. That said, it is better for companies to hedge their bets through careful FX planning,” Langley concluded.