Exporters to Great Britain are facing a difficult time; and not just because of the looming Brexit. They must take into account that their favourable circumstances on the foreign exchange market can do a turn-around. This the warning Joost Derks of the Nederlandsche Betaal- en Wisselmaatschappij (NVBM), a Dutch financial institution, gave in his column.
Great Britain is an important export market for the Dutch agricultural sector. In 2017, this country was good for 9% of the total exports in this segment. Despite the threat of Brexit, companies doing business with British clients have probably experienced a good period of late. The British Pound has been well on the rise since the end of August. This currency strengthened by almost 7% against the Euro in the period up to mid-April. As a result, exporters, who invoice in Pounds, received quite a lot more for a delivery than eight months ago. However, businesses need to keep in mind that this tailwind is going to turn.
Hot topics
The Pound's appreciation was caused by an interest rate hike - the first in a decade. Another factor was the indications that Brexit negotiations were progressing well. Michel Barnier is a Brexit negotiator. He recently reported that 75% of the work that needed to be done for Great Britain's exit from the European Union had been completed. He did, however, admit that some major hurdles still need to be overcome. These include a customs solution for the flow of goods between Ireland and Northern Ireland. These kinds of hot topics will undoubtedly cause considerable rate fluctuations for the Pound.
The Pound fell again
In mid-April, the sentiment around the Pound did a complete turn-around. In three days, the currency lost 2% of its value. One of the reasons is the growing uncertainty over British Prime Minister, Theresa May's, position. She suffered a political defeat in the House of Lords. Here, the opposition succeeded in making an amendment to the law about the UK's exit from the EU. This allows Great Britain to remain a member of the customs union. As important as the rate drop, are the economic figures that were released in mid-April.
Tailwind became headwind
Retail sales fell by 1,2% in March. This drop is twice a much as that estimated by economists. Inflation decreased from 2,7% in February to 2,5% in March - the lowest it has been in twelve months. These economic figures mean that an increasing number of companies have doubts about whether the Bank of England (BoE) will again raise interest rates in May. Even the BoE-governor, Mark Carney, sounded less convinced than a week before. This was in an interview he did with the BBC on Friday. It is, therefore, also high time that export companies start taking measures to prevent the recently experienced tailwind from turning against them.
For more information:
Nederlandsche Betaal & Wisselmaatschappij
5 Beursplein
1012 JW Amsterdam
Tel: +31 (0) 205 782 439
Mob: +31 (0) 651 755 126
joost@nbwm.nl
www.nbwm.nl
Joost Derks is a foreign exchange expert at the Nederlandsche Betaal & Wisselmaatschappij (NBWM). He began his carrier at Van Lanschot Bankers. Derks has since accumulated 20 years of experience in the foreign exchange world. This column reflects his personal opinion. This information is not intended as professional (investment) advice or as a recommendation to make certain transactions and/or investments via the Nederlandsche Betaal & Wisselmaatschappij NV.