UK Exporters Halt EUR-GBP Rally on Hedge Demand

The recent rally in the euro / pound exchange rate has seen UK exporters take advantage of a better exchange rate to hedge exposure to Europe.

"0.7350 was a trigger for many UK corporates to layer in some forward cover." - Richard de Meo, Foenix Partners.

According to currency brokerage Foenix Partners a surge in UK exporters capitalising on favourable exchange rates has been noted.

As we note here, the euro pound rate has rallied to the upper end of what is becoming a well-entrenched range.

Corporate treasurers of companies that export to Europe will have been watching the EUR-GBP rally towards the 0.7400 level in anticipation of good rates to lock in currency hedges.

Exporters whose sales are denominated in euros stand to lose out when the EUR-GBP falls as their earnings buy less sterling when remitted back to the UK.

A hedge that buys sterling at a higher EUR-GBP aims to cover the risks exposure to a falling exchange rate brings with it.

Richard de Meo, managing director of Foenix Partners, comments on the recent surge of UK exporters capitalising on favourable exchange rates:

“On the back of the EUR-GBP rally this week, we’ve seen a notable spike in the number of UK exporters entering the market. Many of these had been sidelined over recent months, but 0.7350 was a trigger for many UK corporates to layer in some forward cover.

“Other than two daily peaks during the height of election fever last month, these represent the best levels since February, making it favourable for UK manufacturers to lock-in and protect the value of sales to Europe.

de Meo points out that it’s never the rally that inspires the trading, but the fall in rates.

“With EUR-GBP rising, treasurers sat back to see how far the rate would go; only following the dip back to 0.7350 and below have they chosen to take their money and run,” says de Meo.

We are forecasting the pound sterling to strengthen against the euro from here, based on both decent UK data releases over recent days and the technical lock that the charts have on the EUR-GBP at present.