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FEATURE SPONSOR


MONEY MATTERS


It is amazing how quickly sentiment can change in the foreign exchange markets. It was only as recently as January that the US dollar was like a dog with fleas while the pound was looking increasingly valuable. How the tables have turned.


WHAT ARE THE KEY MARKET DRIVERS? Recently the new Bank of England Governor, Mark Carney, chaired his first meeting in charge of the Bank’s Monetary Policy Committee. While there was no change in the base interest rate and no addition to the money printing program, the meeting led to a shift in expectations that has been extremely damaging to sterling.


Carney made a statement after the meeting – which is unconventional in itself – in which he made clear that UK interest rates would stay low for some time to come.


This was a surprise for two reasons. Firstly, many in the market had taken his history of hiking rates in Canada as a sign that he would do the same here and secondly, a recent raft of more positive UK data releases supported the suggestions that the UK economy is improving.


Carney shot those ideas down, stating that expectations of a rate rise were “not warranted”. This is an uncharacteristically aggressive move by the Bank of England who tend not to say anything unless they make a change of some kind. Carney set his stall out early and the market is now waiting eagerly for indications that he will enact further quantitative easing measures.


WHY DOES ALL OF THIS MATTER TO YOUR BUSINESS, PARTICULARLY IN THE WIND ENERGY INDUSTRY? British importers have had a difficult year. Sterling started the year as the worst performer, falling by 9% in January. This made life very difficult for those importing businesses that set their annual budget levels in December, as rates fell quickly.


Boosting this sterling weakness, the government has made it clear that support for exporters is their priority – great news for them but not so much for those wind energy businesses who are importing turbines, cables, computers etc from around the world. This latest fall in the value of the pound is another hurdle to jump.


The facts are simple, when the pound falls the cost of foreign goods goes up. The UK wind energy sector needs to consider this fact and the risk of further falls as the year goes on – particularly if paying for goods in US dollars.


The dollar is strengthening as markets anticipate an end to money printing in the US. Protective dollar hedging is certainly worth considering at the moment as the rates are widely expected to fall.


EURO IMPORTERS NEED NOT PANIC RIGHT NOW


However, we must remember that currency exchange has two sides to the cross, and those importing goods from the Eurozone need not panic quite yet.


While the Eurozone market sentiment has been quiet over the last six months or so, the problems in Greece, Portugal, Spain and Italy have not gone away. Even in Germany there are signs of a further slowdown. All of this suggests that the euro may have room to weaken in time. This could give the pound some breathing space down the line and provide euro importers the chance to hedge currency at higher levels.


TAKE PROTECTION AGAINST A DECLINING POUND


Nevertheless, protection is the name of the game and all the sign posts point to a further declining pound. Those that need US dollars are right to be concerned.


Ultimately the goal of any importer should be the same – protect yourself from risk. If current exchange rates are above your required budget levels then, with the downside outlook for the pound looming large, it is time to look at hedging.


Torrie Callander Senior Commercial Dealer Global Reach Partners www.globalreach-partners.com


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