The pound’s dramatic collapse has triggered a headlong rush by importers to protect themselves against soaring costs, currency dealers said today.
Sterling is the worst performer in international currency markets this year, tumbling 8.5% against the dollar to below $1.50 and 7% against the euro. The declines have outstripped even Japan’s yen, which has plunged after the nation’s central bank committed to an unlimited money-printing programme to revive its stagnant economy.
HiFx Currency, which has nearly 5,000 corporate customers, has seen a 35% jump in business this year compared with the final quarter of 2012 as businesses look to protect themselves from the sliding pound.
Director Chris Towner said: “Importers are fearful over the level of cover that they have. Generally when the markets are volatile we have significant rises in the need for hedging because the market is dictating to them. Importers tend to run on not much more than a 10% margin, which has been pretty much wiped out so far this year.”
The pound has suffered against the dollar as improved momentum in the US contrasts with stuttering UK growth. Despite wobbles caused by Italy’s inconclusive election, sterling has also suffered against the euro, with European Central Bank president Mario Draghi pledging to stand behind the single currency.
Moneycorp dealer Glenn Uniacke reported a rush of interest in contracts which cap further currency losses but allowed firms to benefit from any potential recovery. “The fear factor is definitely there,” he said.
Analysts at payments firm Western Union Business Solutions believe the pound could sink as low as $1.45 in the weeks ahead. A spokeswoman said: “Many of our clients on the import side are worried about the direction sterling has taken. We have been hearing a lot about tight margins, and with consumer demand still so weak business are more likely to take the hit on currency costs than pass them on to customers. We have definitely seen the impact the falling pound is having on SMEs in particular.”
