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Preparing for the UK budget and US election

24 October 2024

Strategies for corporates to navigate currency market volatility

With the UK Budget due next week and US election shortly after on 5th November, markets are preparing for what Bloomberg has suggested could be one of the most volatile periods in recent years. We’re already experiencing volatility as markets respond to central bank actions and prepare for these upcoming major economical events with GBP to USD fluctuating more than 6.2% in recent months.

US elections have historically triggered significant currency movement, with EUR to USD and GBP to USD shifting by 10-20% in the weeks leading up to and after the 2020 election. With high levels of volatility expected again this time round, it’s crucial for businesses to recognise both the opportunities to harness and the risks to protect against during this market turbulence. Here are some actions we’d encourage you to consider.

  • Avoid the risk completely. Implement strategies to protect against worst-case scenarios, utilising solutions that eliminate currency risk while still allowing some upside if the market moves favourably. Create a plan to ensure cashflow stability now, avoiding adverse exchange rate movements.
  • Leverage market volatility and target exchange rates that aren’t yet achievable. While this approach carries a higher risk, it allows your business to harness volatility through auto-execution limit orders, targeting rates that are not currently available but may emerge in the coming weeks during market turmoil. This approach can be applied to both spot deals and forward contracts.
  • A balanced approach. Mitigate some risk by securing a portion of your currency needs at current levels while leaving auto-execution orders in place to capitalise on potential future gains. This way, you can manage exposure with some certainty while still benefiting from favourable rate movements as market volatility continues.
  • Do nothing. With two significant risk events ahead that are beyond our control, along with unpredictable exchange rates, this is probably not a viable option. Hoping for a favourable outcome is not a strategy, especially given the potential for considerable market swings. If you don’t have any protection in place or a plan of action, we strongly recommend consulting one of our currency specialists to develop a strategy

We will do our best to keep you informed over the coming days and weeks, actively managing your exposures to the best of our ability, including updates from Bloomberg and Reuters, banking forecasts, and potential exchange rate movements.

Get in touch now for a free FX risk assessment and find out how Lumon can help protect your business from currency volatility.