WE ALL know that currency movements can be unpredictable. However with the battering sterling took during the height of the credit crisis, it is crucial for financial directors to consider where they source suppliers, as well as their terms.
Quite simply, due to exchange movements, suppliers from some countries that were expensive two or three years ago may now be much cheaper.
Despite the government’s current drive of prompting the export sector, let’s not make any bones about it; we are still an importing nation. The value of a currency has a huge bearing on the cost of imported goods and services.
Dramatic changes have taken place even over the past year that make some countries’ suppliers more attractive and vice versa, whether for raw materials or goods for resale. For instance, sterling is down nearly 10% against the euro over the past year, making all imports from Europe much more expensive.
However, it has appreciated almost 13% against the US dollar in the last 12 months. Implications of this include: · It will have been more advantageous to source products from nations who accept US dollars over euros. The markets expected this will continue for the foreseeable future (especially if we see further quantitative easing in the US).
Despite concerns about inflation in China, (because it generally uses the US dollar), importing from here is far more favourable compared to 12 months ago. This also applies to other regions which accept the US dollar too, such as South America and the Middle East. · In contrast, Australia and New Zealand’s currencies have continued to rise, making its goods much more expensive (as anyone who likes New World wine will have experienced).
The problem that the UK has had over the past year is that sterling has been one of the worst performing currencies, with only the Canadian dollar and the US dollar ranking lower within the G10. However, there are some regions where sterling has performed, paving the way for cut price goods and services. These include (based on the last 12 months):
Europe – For those importing textiles, metals or foodstuffs, Turkey is much cheaper since sterling has made close to a 10% gain.
Africa – Again, especially for textile imports, the Egyptian pound continues to struggle following recent events in the country and products from here are much cheaper than previously.
Asia – Businesses that import services, electrical products and textiles for example should look at Hong Kong. There are opportunities as sterling, as in parts of Europe, has made close to a 10% gain.
Middle East – A host of nations are pegged to the US dollar, meaning their goods and services are currently more competitively priced.
There are still many imbalances in the global economy and many questions that remain unanswered. With this mind, the currency market is likely to remain volatile in the medium-to-long term. Keeping your suppliers and distributors flexible in the coming months will be important and may allow you to benefit from potentially large savings.
Jamie Jemmeson is a trader and foreign exchange specialist at Global Reach Partners (www. globalreach-partners.com)
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