Treasurers grapple with prospects of turbulent year ahead in FX
Corporates are adopting a variety of approaches to mitigate the impact of uncertainty in foreign exchange markets caused by divergence in economic policy and performance.
With two of the world’s largest economies, the US and the UK, set to go to the polls this year and a change of government likely in both cases, the scene is set for heightened volatility in the dollar and sterling.
Add the conflicts in Europe and the Middle East and tensions in the South China Sea into the mix and all the ingredients exist for substantial geopolitical turbulence.
Conflicting views from analyst reports underline the difficulty of predicting exactly how these factors will impact the dollar, the world’s reserve currency and its second-most traded currency. Having started the year at about 1.10 to the euro, it currently sits at just below 1.09.
Because central banks make interest-rate decisions independently, currency markets will see sharp, unsynchronised movements
January’s corporate FX report from BNP Paribas suggests that the dollar’s strong start to the year will be short-lived as weak employment data makes additional interest rate cuts more likely.