At Hedge Eagle we provide cloud based hedging software to measure the fair cost of FX hedging. The first thing many Finance leaders ask us is whether they are being charged fairly for FX hedging. The analysis that follows is collated using our data and analytics platform.
We have observed sharp moves in financial markets over the last few weeks. Currency market volatility has increased and since last Monday we have seen the Dollar rapidly strengthen relative to both GBP and EUR, as capital flows towards a perceived safe haven.
One area where CFOs and Treasurers may not yet be aware of change is the cost of hedging. Central bank monetary policy stimulus has caused some significant moves in interest rate forward expectations which in turn directly affects the cost of hedging. British import or export businesses that hedge cashflows will be directly affected by these changes.
The biggest winners in the new environment will be USD exporters hedging via a longer tenor strategy. Previously the forward point cost to Sell USD one year forward would have been +115 pips but it has reduced to +37 pips, a 68% improvement. The opposite is true for importers (buying USD forward) such as retailers, they will now get 68% less forward point benefit from selling one year forward.
For those firms with EUR cashflows the change is consistent regardless of whether hedging is shorter term (e.g. 3m) or longer term (e.g. 1yr). Importers will benefit by buying EUR forward at a third less forward point cost, whereas exporters (selling EUR forward) will incur a third more forward point cost than a month ago.
If you have any questions about what this means for your businesses cashflows or implications for your hedging strategy please don’t hesitate to get in contact. At Hedge Eagle we are here to provide help with any questions related to the cost of hedging, risk measurement or indeed, hedging strategy.
Our cloud based hedging tools help CFOs, Treasurers and Finance leaders to control cost and manage the risk of currency hedging trades. It’s often hard to know if you are being charged fairly for FX hedging but our platform enables you to have confidence that you are paying a fair cost for currency hedging.
Please sign up for a free trial account and receive insight into exactly how much you are paying your bank or broker to implement your hedging strategy.