The US dollar was placed on the defensive on Friday due to doubts whether the Federal Reserve will be willing to hike interest rates amidst worries over a new Covid variant of concern.
In the age of Brexit and uncertain US foreign policy, this volatility has only been heightened and sudden shifts in exchange rates are becoming common.
While these movements can make it tricky to plan an international currency transfer, we’re here to help.
At Currencies Direct we provide a range of services to help you counter currency volatility and budget for your transfer effectively – services like forward contracts.
With a forward contract you can pay a small deposit to fix the exchange rate for up to a year.
What is a forward contract?
While fixing the current rate means could miss out if the exchange rate suddenly strengthened, you’d be protected from any negative shifts.
Forward contracts are often used by people who know they’re going to need to move money abroad in the future (to fund a property purchase, for example) and are concerned that the exchange rate could weaken.
Why would you use a forward contract?
After a number of happy years in Spain, Dan and Sarah began planning their move back to the UK in late 2018. They put their Spanish property on the market for €450,000 in November and quickly attracted an offer from a buyer.
At the time the EUR/GBP exchange rate was in the region of £0.89, leading the couple to expect a return of around £400,500 once they transferred the proceeds from their house sale back to the UK.
But by the time the sale was finalised in late February, the EUR/GBP exchange rate had weakened to €0.85, resulting in a return of £382,500 - £18,000 less.
If Dan and Sarah had fixed the rate back in November they would have been protected against the pound’s sudden recovery.
However, while a forward contract is a handy service, it isn’t the right option for everyone.
If you’d like to find out more about forward contracts or any of the other services we offer, have a chat with one of our currency experts – call us on +44 20 7847 9400 or email [email protected].
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)