The new year is already upon us, but it’s never too late to get smart with your international payments. If you’re trading overseas, preparing for currency volatility is a vital step if you want to protect your profit margins for the year ahead. In fact, with the right plan in place, you could actually benefit from any currency dips and dives that arise. Here, Jake Trask – FX research director at international payments experts, OFX - looks at what you can do to capitalise on currency in 2018.
What happened last year?
The euro was the star player of all the major currencies last year, despite a rocky German election threatening to put a fly in the ointment, and an unexpected rise in populism hitting a number of continental elections. In spite of positive economic data from the UK, meanwhile, the pound never really got off the ground, as Brexit negotiations continued to weigh on its performance. For the dollar, the story wasn’t much better. It performed worse than expected throughout 2017, despite many analysts betting on the Trump presidency and record unemployment to give it a boost.
What can we expect from the year ahead?
2018 is set to be a year of uncertainty. Whether simmering tensions with North Korea or the ongoing investigation into Russian collusion, there are major unknowns hanging over the Trump presidency – and those are just two of the biggest. The markets will be watching closely, to see whether the dollar can get off the ground in the year to come.
Could the euro stay strong through 2018? The jury is out. In March, markets will be keeping an eye on the Italian election, which is yet another to be contested by an anti-establishment party. Should it win, the euro could wobble. That said, German coalition negotiations are starting to make progress, and this has made the outlook more positive for the single currency. The famous German efficiency continues elsewhere, too, with the country’s strong manufacturing figures furthering the euro’s momentum.
Interestingly, the pound has been showing some early traction in January, returning to levels not seen since the Brexit referendum. However, these highs can be put down to the dollar’s weakness more than anything else, so sterling may not be able to support itself going forward. For that to happen, we’d need significant economic growth in the UK, and a positive outcome from Brexit talks, resuming in March. All eyes will be on negotiations, as they enter their final stages this year.
Preparing your business
So, what does this all mean for your business? If you’re trading overseas, currency volatility can pose a threat to your bottom line, but it can also give you some key advantages. For example, UK exports are particularly attractive to overseas buyers right now, with a weak pound making them more competitively-priced.
Because every business is different, it’s important to develop a currency strategy that’s right for you. A surefire way to do this is to partner with a trusted expert, who will be able to identify your specific needs, and help you to tailor your approach.
For example, if you are selling online, you could really benefit from a virtual currency account. This allows you to accept foreign payments in their currency of origin, and wait to convert them when the exchange rate is right for you. You’ll also get around the hefty fees that online marketplaces often charge for processing international payments, making the whole process far less painful.
It’s also important to keep an eye on the currencies in your supply chain. If the market suddenly shifts, you could be left with a weaker exchange rate than you had planned for, and that means your imports could become more expensive.
In a recent OFX survey, 22 per cent of small British businesses questioned said that they stopped importing goods and services last year because of the weak pound. With a strong currency strategy in place, this need not be the case – confidence comes with planning.
Though the year may have surprises in store, that needn’t mean currency movements should mean the same for your business. With planning, it’s possible to protect yourself from unexpected currency swings, and even turn them into an opportunity for growth.
If you’re unsure about where to start, try speaking to an expert, who can talk you through the options and help you choose a plan that lets you focus on growing your business.
Jake Trask is FX research director at international payments provider, OFX.