Following a sharp drop in the value of Sterling, the guys at Currencies Direct have been thinking about what it means for online traders:
The pound fell sharply in a mysterious FLASH CRASH in the foreign exchange markets on Thursday night.
A few minutes of chaos during the Asian trading session sparked a plunge in Sterling to a 31-year low. Despite recovering some of the losses this morning, the dramatic fall demonstrates the lack of appetite for Sterling at the moment as well as the high levels of volatility in currency markets. The 6% decline is the biggest since voters in the UK chose to leave the EU. The pound is now 2016’s worst performing currency out of the 31 major currencies tracked by Bloomberg.
All this has occurred only two days after Theresa May’s speech at the Conservative party conference, during which she pledged that the UK will formally trigger Article 50 of the Lisbon Treaty before the end of March 2017, caused the pound to hit a 3-year low against the euro.
Mystery still surrounds the exact reason for the sudden sell off with some traders believing that it could be down to a ‘fat finger’ error from a trader or a computerised chain reaction triggered by trading algorithms. Despite recent economic data from the UK suggesting that it had weathered some of the Brexit storm, it is clear that the currency markets still have one eye on the long term impact of leaving the EU.
The good news for online sellers
If you are generating sales in US dollars on marketplaces like Amazon.com and converting them back to pounds the exchange rate is working to your advantage. Your products are either likely to be more competitive on price compared to local US suppliers or you will be able to make more profit on them in pounds if you keep US dollar prices the same. It’s effectively the best time in the last 30 years to be selling into the US.
Online sellers should prepare for future market volatility. Exchange rates go up and down and if you want to secure the current exchange rate in anticipation of your bumper Christmas sales in the US, you could consider a forward contract, which will lock in today’s exchange rate for use at a later date.
For more information on foreign exchange solutions for online sellers contact Currencies Direct who will be happy to help.