Currency Trends just as hard to Predict as Fashion

Fashion is notoriously hard to predict. In the early 1990s,

who would have thought that skinny jeans and quiffs would have been in vogue – when the unkempt baggy, ‘Nirvana’ look was so trendy. There’s no way of telling what the fashion of the future will look like, and it’s not always just simply about being different for the sake of it.

The same can be said for the far less glamorous business of foreign currency exchange. The currency markets are subject to fluctuations on a daily basis and rates can move by as much as 10% in the space of just a few days. And for anyone who is involved in buying and selling fashionable goods internationally - this kind of movement can have serious implications for their business.

“Last year was a volatile one, to say the least, and this caused significant variations in the value of international currencies,” said Jeremy Cook, chief economist at foreign exchange brokers, World First.

“The Euro has moved by over 13% against the pound throughout the last 12 months, and these troubles look set to continue into 2011. Meanwhile, across the Atlantic, the US Dollar is also faced with an uncertain 12 months as the Fed continues to spend its second round of quantitative easing.

“I could go on, but clearly anyone involved in moving money between countries, generally via importing and exporting goods internationally, will need to keep their eye closely peeled on the exchange rates in the months ahead.”

Short of a possessing a crystal ball to tell you where the rates are going, you are best off looking up one of the companies that are well positioned to help you control your levels of risk.

By using a foreign exchange specialist you can secure the very best ‘spot rates’ (the rate to transfer immediately) or fix the exchange rate in advance by using a Forward Contract. This means you can set a rate now for a transaction happening up to 3 years in the future - so you can plan ahead safe in the knowledge that any changes in the exchange rates will not impact upon your plans.

If you want the security of a forward contract, but would also like to benefit if exchange rates move in your favour, then a Currency Option could be the right choice for you. These sophisticated products are usually reserved for large multi-nationals by the banks. However, at some brokers offer these products to the wider business market. “By planning ahead with the right kind of currency hedging strategy it is possible to save huge amounts of money,” adds Cook. “With the exchange rates continuing to prove very difficult to predict, some careful forward thinking might be the difference between making a profit or not.”