Caxton – The trick to navigating expected currency volatility in 2024

26th March 2024

In the world of global and growing business, currency values ebb and flow, influenced by a variety of factors from unemployment rates to central bank decisions. For businesses engaged in international trade or those exposed to currency risk via supply, understanding these shifts is crucial. There is a scale of good and bad ways to handle currency risk, with doing nothing somewhere in the middle, and at the bottom – as seen in real contracts – passing any fluctuations onto your customer.

The best strategy? Education. This doesn’t have to be daunting. We spoke to David Stritch, a currency analyst at Caxton, and obtained comprehensive insights from their dedicated expert. “Understanding the broader economic environment gives businesses a crucial advantage,” David notes. “It allows for informed decisions that can protect margins.”

As most readers would know, things can go unchanged for some time – and then all of a sudden, a movement can upset the applecart. To help businesses stay ahead of these changes, David curates a daily market view, dissecting economic factors affecting key currency pairs. Notably, key currencies are weakening for a number of factors including:

  • The Dollar has experienced a notable decline against Sterling since the start of March, touching a seven-month low. This trend has been driven by an unexpected rise in US unemployment to 3.9% and a significant revision downwards of over 100,000 in previous non-farm payroll figures. Further influenced by a dovish testimony from Federal Reserve Chairman Jerome Powell, these factors have contributed to the Dollar’s recent weakness.
  • Despite the Dollar’s position, Sterling itself has not been without its fluctuations. The UK’s unemployment rate edged up from 3.8% to 3.9% in January, with a corresponding slowdown in wage growth. These developments have led to a weakening of GBP, showcasing the intricate interplay of global economic indicators on currency values.
  • The Eurozone’s break from an 11-month disinflationary trend has shifted market expectations, reducing the likelihood of a near-term European Central Bank (ECB) rate cut. This development, coupled with ongoing UK economic concerns, hints at a bullish outlook for EUR against GBP in the coming months.

Yet depending on which pair/s you need to track this year, there could be an upset. With nearly half the world’s population voting in 2024, US, UK, Indian, Indonesian and other elections are certain to play a role in contributing to volatility in markets. Within the US, former President Trump has achieved more mainstream support than during both of his previous campaigns, whilst in the UK we anticipate 14 years of Conservative premiership to end.

Some analysts are widely predicting a surge in Dollar, even as high as 5%, if Trump wins another term. Here in the UK, Parliamentary candidates are just in the process of being selected. However, while outcomes can’t be known just yet, what is almost certain is that markets will react to general election news and analyst predictions, leaving opportunities to gain, or for those who are unprepared, potential losses.

So, the trick to navigating expected currency volatility in 2024? David recommends setting a budget rate and working with a currency specialist to help your buy or supply side currency stay within that target. If you are set up to react quickly to potential gains or losses, simply understanding a bit better the factors affecting your business bottom line and staying up to date with daily economics could see you through.

Ultimately, knowledge is power in the currency markets, enabling companies to make decisions that protect their interests and foster growth.

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