Cash & Liquidity ManagementFXHow to hedge your currency as Brexit approaches

How to hedge your currency as Brexit approaches

Nick Haslehurst, Chief Financial and Operating Officer at Moneycorp, has urged treasurers to “take a proactive strategy” when hedging currency, especially as the Brexit deadline approaches.

Nick Haslehurst, Chief Financial and Operating Officer at Moneycorp, has urged treasurers to “take a proactive strategy” when hedging currency, especially as the Brexit deadline approaches.

As the uncertainty caused by Brexit rages on in Westminster, Haslehurst believes it was important to not get caught out by Brexit like many firms were in the immediate aftermath of the referendum result.

“We all saw in the days after the announcement of the original referendum result in the collapse in Sterling. We saw a whole raft of profit warnings from companies who hadn’t hedged their Sterling position,” Haslehurst said. “If you have committed floats, if you have committed contracts, if you have committed costs coming in, knowing what they are and hedging them today is a lot better than gambling on the future.”

Haslehurst believes this is increasingly important, particularly as the Brexit crisis was causing such large fluctuations in the value of the pound.

“In this fluid scenario, sterling strengthened quite a bit last week. But equally, something could have happened today that I haven’t even seen, and it could now plunge.

“Don’t just sit by and take the costs as they are because you could actually end up selling your goods at a loss, causing a huge amount of cost to your P&L, as we saw post the referendum result, when many companies didn’t put in place a sensible hedging strategy.

“Where you’ve got commitments can you manage them, know what they are and hedge them? Take a proactive strategy,” he added.

Brexit leading to shorter hedging strategies

Moneycorp’s Chief Financial and Operating Officer also explained how the “moving Brexit timetable” was leading to uncertainty in the hedging market, “dramatically” changing hedging needs.

“Over the last couple of months, we’ve seen a narrowing in the period of time people are hedging because they are uncertain about what will happen after the 31st of October.

“You won’t want to hedge for six to nine months because we’re uncertain if anybody can deliver their goods or receive their goods in. We’ve seen a contraction in forwards periods, people doing hedging strategies a lot shorter, making shorter commitments, which is sensible and in parallel with a with a moving deadline that none of us are in control of,” Haslehurst added.

This was a sign however, that companies have learned since the referendum result in 2016 and were adapting to the uncertainty as best they could.

“I think people have learned since the 2016 vote, but unfortunately the uncertainty of the moving deadline is meaning people aren’t able to be sure at this stage that they will be able to deliver their goods.

“There is less certainty in their long-term contracts to hedge at the moment, because people aren’t able to guarantee that they can deliver their goods on the first of November. That’s why we’ve seen this shortening of the hedging window at the moment. I think once it’s resolved, hopefully we’ll get back to focusing on UK PLC and delivering goods and services and understanding our import needs and what they’ll be. Then you will see those tenors going back to normal.”

“You can’t predict anything”

As for predicting when or if Brexit will actually happen, Haslehurst was adamant that the safest option was to make no predictions.

“Our base case is until the 31st October [deadline] has moved, that is our baseline plan… you just can’t predict anything.”

He also called for the government to give financial services companies time and certainty moving forward.

“From our perspective, certainty and a transition period is really helpful. Financial services is a very involved, ingrained set of contracts – FX contracts flow for periods of time, so we would like as much notice as possible to deal with that.”

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