A report from MillTechFX has revealed that 83% UK corporates have had their finances impacted by the stronger pound.
Although half of these companies saw positive outcomes, the other 50% experienced “negative financial impacts,” highlighting the intricate effects of currency “fluctuations on business performance.”
The MillTechFX UK Corporates CFO FX Report 2024 is the latest instalment of the firm’s global research series, gathering insights from “250 finance leaders at UK corporates to reveal their FX challenges and hedging strategies.”
Rising costs are a key theme with “most corporates (70%) reporting that FX hedging costs had risen over the past year, with smaller firms feeling the pressure more acutely (85%) compared to larger companies (59%).”
For those that don’t hedge, the main “reason given was because it was too expensive (76%). In addition, two of the top three FX priorities for UK corporates this year are reducing costs (31%) and ensuring cost transparency (29%).”
Despite the increase in hedging costs, “over three-quarters (76%) of UK corporates hedge their forecastable currency risk, a slight increase from last year (75%).”
Among those not hedging, “68% are now considering it due to market conditions.”
The average hedge length has increased “47% to 5.55 months this year, up from 3.78 last year, indicating that firms are seeking longer-term protection and stability.”
Meanwhile, the average hedge ratio remains “steady at 45%, the same as in 2023.”
Global geopolitical tensions are adding to the ‘uncertainty for corporates, with many bracing for increased volatility.”
Over half (53%) of respondents plan to “extend their hedge durations in response to these growing concerns.”
FX fears surrounding the upcoming US election “are also prominent, with the top three being counterparty risk in hedging transactions (40%), the impact of policy changes on currency values (37%), and unpredictable market movements (37%).”
Other notable findings include:
- Growing interest in FX options – Finance leaders are diversifying their hedging strategies, with 64% now using FX options more frequently.
- Corporate credit crunch – 94% of respondents reported that access to financing has become more difficult over the past year, while 79% noted rising interest rates and fees from their credit providers.
- Reliance on manual processes – Despite advances in technology, 34% of respondents still conduct financial transactions by phone, 32% via email, and 30% by sending or uploading files.
The rise of AI (artificial intelligence) and automation – All finance leaders polled (100%) are exploring artificial intelligence (AI) in some form.
As mentioned in the update, price discovery (34%), risk identification (30%) and trade execution (29%) are the key areas being explored for automation.
The report also noted that automating manual processes was corporates’ top priority (41%).
As noted in the update, MillTechFX is an FX-as-a-Service (FXaaS) pioneer that enables corporates and fund managers to “access multi-bank FX rates via an independent marketplace.”
Its solution automates the FX workflow and ensures transparent best execution.
It offers a fixed fee service model, including “third-party transaction cost analysis to ensure total transparency.”
MillTechFX harnesses the purchasing power of Millennium Global, one of the world’s largest currency managers, “with $29bn group hedges assets and transactions over $592bn in annual FX volume.”
Via the MillTechFX marketplace, clients can access FX rates and credit terms from “up to 15 Tier 1 counterparty banks.”
Headquartered in London, MillTechFX is reportedly authorized and regulated by the UK’s Financial Conduct Authority (FCA), registered with the USA’s National Futures Association (NFA) and Canada’s Financial Transactions and Reports Analysis Centre (FINTRAC).