Following a period of relative calm at the beginning of the year, there are ominous signs that the situation in the Eurozone may be starting to unravel. First, France elected a new left wing president - Francois Hollande – who immediately told supporters that his victory gave hope of an “end to austerity”. Then the leader of Greece's left-wing Syriza bloc said he would try to form a coalition-based government which would renege on the terms of the recent EU/IMF bailout deal. Alexis Tsipras, whose bloc came second in the Greek election, said Greek voters had “clearly nullified the loan agreement.”
This is significant news for the euro and, indeed, anybody involved in import and export to the Eurozone. The reason is that it once again raises fears that we may soon witness a partial or complete break-up of the Eurozone. How likely is that? Well, it’s quite telling that bookmakers Paddy Power – who are no fools – go as short as 6-4 that Greece will be using Drachmas by 1 December 2012.
Given this precarious position, it was no surprise that sterling hit a 3.5-year high against the euro of 1.2440 in the wake of the general election results in Greece and France.
But the broader message is one I’ve spelt out before: volatility in currency markets will be the norm for the foreseeable future. Some kind of currency strategy is an absolute must-have for businesses dealing in international trade.
There’s no doubt the 1.2440 figure above looks hugely tempting. In the last issue I wrote that 3-month GBP expectations against the euro were at 1.23, moving to 1.25 on a 12-month scale. At the time of writing, I would revise those figures upwards to 1.27 (3-months) and 1.32 (12-months).
However, I would strongly advise use of a hedging strategy because the Eurozone crisis is a fluid situation. Buyers from the Eurozone could use a hedge to ‘lock-in’ that 1.24 rate – which is excellent by the standards of recent years – while leaving some scope to purchase further euros later in the year.
The reason for this is that while the situation in the Eurozone doesn’t look healthy at the moment and points to a further deterioration of the euro, things can change quickly – and recent history suggests they probably will. Remember, the UK economy itself is in recession. Moreover, the UK Coalition of the Conservatives and the Liberal Democrats is on shaky ground right now, especially after the hammering both parties took at the recent local elections. Tellingly, commentators on both left and right of the political spectrum are increasingly questioning the Coalition’s austerity measures. Yet any change in tack would likely see the markets hammer sterling.
These are, need I say it, uncertain times; a robust currency strategy for any business engaged in international trade is more important than ever. Find out how your business can avoid market volatility by emailing us, or calling us on 020 7898 0500 – you can also visit our website at www.smartcurrencybusiness.com
This is significant news for the euro and, indeed, anybody involved in import and export to the Eurozone. The reason is that it once again raises fears that we may soon witness a partial or complete break-up of the Eurozone. How likely is that? Well, it’s quite telling that bookmakers Paddy Power – who are no fools – go as short as 6-4 that Greece will be using Drachmas by 1 December 2012.
Given this precarious position, it was no surprise that sterling hit a 3.5-year high against the euro of 1.2440 in the wake of the general election results in Greece and France.
But the broader message is one I’ve spelt out before: volatility in currency markets will be the norm for the foreseeable future. Some kind of currency strategy is an absolute must-have for businesses dealing in international trade.
There’s no doubt the 1.2440 figure above looks hugely tempting. In the last issue I wrote that 3-month GBP expectations against the euro were at 1.23, moving to 1.25 on a 12-month scale. At the time of writing, I would revise those figures upwards to 1.27 (3-months) and 1.32 (12-months).
However, I would strongly advise use of a hedging strategy because the Eurozone crisis is a fluid situation. Buyers from the Eurozone could use a hedge to ‘lock-in’ that 1.24 rate – which is excellent by the standards of recent years – while leaving some scope to purchase further euros later in the year.
The reason for this is that while the situation in the Eurozone doesn’t look healthy at the moment and points to a further deterioration of the euro, things can change quickly – and recent history suggests they probably will. Remember, the UK economy itself is in recession. Moreover, the UK Coalition of the Conservatives and the Liberal Democrats is on shaky ground right now, especially after the hammering both parties took at the recent local elections. Tellingly, commentators on both left and right of the political spectrum are increasingly questioning the Coalition’s austerity measures. Yet any change in tack would likely see the markets hammer sterling.
These are, need I say it, uncertain times; a robust currency strategy for any business engaged in international trade is more important than ever. Find out how your business can avoid market volatility by emailing us, or calling us on 020 7898 0500 – you can also visit our website at www.smartcurrencybusiness.com
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