Planning ahead could mean pound signs for the plastics industry

The team at Smart Currency looks at the importance of implementing a robust currency strategy when preparing for foreign business transactions around international shows and exhibitions, trading with overseas markets or exporting into new territories.

With the countdown firmly on to the K Show in Dusseldorf, Germany, many plastics businesses are busy finalising their preparations, including the implementation or revision of their currency strategy – both for the visit itself and the new business opportunities that hopefully eventuate.

Effective currency strategies are not simply drafted and then left forgotten about in a drawer – they are actively pursued and regularly updated in order for a business to maximise efficiencies and contain risks as much as possible.

Currency markets have been relatively subdued for the past month or so compared to extreme volatility observed during times of political and economic turbulence, such as in the aftermath of the messy Cyprus bailout and inconclusive Italian election. Sterling and the Euro, while staying on the move as currencies always do, have avoided significant movements against each other in recent weeks.

The US dollar, however, has seen a notable strengthening, given the apparent resurgence – although still modest – of meaningful growth in the world’s biggest economy, even in spite of the hefty spending cuts imposed earlier in the year.

The current situation is, however, unlikely to last through to the show, let alone longer term. Between now and K Show’s opening day on October 16, Canadian Mark Carney will become the first non-British Governor of the Bank of England; Germany will head to a general election, with expectations of a tight contest for Chancellor Angela Merkel; and speculation over when the US Federal Reserve will begin gradually removing its quantitative easing stimulus already causing concerns.

One major side effect of each of these events will inevitably be volatility on the currency markets. Each has the potential to drastically shake up the status quo, for better or worse, and with economic sentiment still fragile the world over, uncertainty about change is translating into wild currency movements. However combine all three in the space of several months, and the stage is set for a dramatic production to unfold.

Businesses are becoming increasingly aware of the impact such exchange rate movements can have when buying and selling machinery, services or raw materials. However they also have the potential to impact other expenses – such as transport, accommodation and administrative costs when travelling to events such as K Show, as well as setting up new business opportunities abroad.

Matthew Sydenham, Managing Director of Imagro UK, explained: “We need to make sure that we’re constantly focused on limiting our losses. We do this by setting a target exchange rate for each month that we would like to achieve. If we have time, Alex Bennett, Head of Sales at Smart Currency, will lock in the rate with a Forward Contract or he will watch the rate until it reaches a satisfactory level that we are happy to trade at.”

If your business could use specialist advice in devising a currency strategy, call Smart Currency today on 0845 638 0571, or download Smart Currency's Treasury Management report for help with all aspects of budgeting for international trade.