Daily Forex Report 02-Nov-2022: GBP strengthens against Euro as BoE starts bond disposal

No dovish pivot due from US Fed following advance in consumer prices

A further advance in consumer prices, combined with hot jobs data, diminished hopes for a dovish pivot from the US Federal Reserve when it meets later today.

Another 75 bps hike to 4% is expected; the Fed said it was “driven by data” and “strongly committed” to reducing inflation after all.

That’s bad news for the struggling housing market but good news for the US dollar, with the dollar index (DYX) holding strong at 111.378.

Cable has edged back slightly to US$1.149 this morning having added 0.19% yesterday, while the EUR/USD pair is looking bearish at US$0.989.

The Bank of England has begun its delayed bond disposal, as it looks to unwind over £850bn worth of government debt accrued throughout its 14-year stimulus programme.

So far the European Central Bank and the Fed have considered, but not actively pursued, similar QT measures.

How will cable respond to £900bn QT cycle? – Source: capital.com

UK 10-year gilts have already reacted positively, having dropped to 3.46% and while QT should have a positive effect on the pound, it is likely to be far more long-term.

EUR/GBP has cut back to the 85.9p area following a weak Tuesday trading session.

How to manage FX Risk/Exposure?

Understanding your FX risk and exposure is paramount to your bottom line. At Currency Solutions our decicated team of experts can help you manage and understand you exposure or risk.

What does FX Risk/Exposure mean?

There are three types of foreign exchange exposure companies face:

1. Economic exposure
2. Conversion exposure
3. Transaction exposure

In short, FX/forex (foreign Exchange) exposure means the risk that an individual or company takes when executing transactions in foreign currencies.

If a business is looking to make transactions globally or in multiple currencies, it's important that they first identify their exposure to risk in order to put a calculated risk management strategy in place.

FX Risk/Exposure Management - How does it work?

Volatile currency markets can have a huge impact on your profits.

Let say that you set a 2021 price for a product, bought in USD including a 5% profit margin, based on the exchange rate when the pound was strongest.

When the pound weakened, your profit margin would soon erode, and leave you with -2.5% profit - based on the same price, from stock bought at the dollar’s peak.

This fluctuation in price could force you to either absorb the loss or increase your prices, with the knock-on effect of untenable prices in your already competitive market.

We are a payment solutions provider with over 20 years’ experience and expertise in foreign exchange payments Our services inlcude but are not limited to:

• Hedging and FX Strategies
• Best rates for Spot trades
• vIBAN set up
• E-commerce solutions

We know that it can be time-consuming and challenging to keep up with the innumerable ongoing events that continuously affect the global market mood.

Click here for an instant quote or contact us for a free foreign exchange health check, guaranteed to save you money.