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How will the falling price of Sterling affect the profits of online sellers?

What a difference a year makes! Cast your mind back to the foreign exchange headlines of January 2015: The euro was plagued by recession fears, a Grexit was becoming a distinct possibility, and Sterling was secure against the US dollar with the prospect of the UK raising interest rates before the end of the year.

Fast forward to the present day and, although January 2016 has certainly been eventful for the markets, we are seeing what amounts to a complete reversal of fortunes for the euro and the pound.

What’s the situation?

The pound has steadily declined over the course of this month. The Bank of England’s decision to leave interest rates on hold until at least 2017, and poor industrial and manufacturing numbers, have indicated an economic slow-down in the UK and sent investor confidence crashing.

Conversely, the euro seems to be faring well so far. Despite concerns about China’s stumbling growth and uncertainty over the health of the global economy, the steadfast policies of the European Central Bank and the relative cheapness of the currency has boosted investor confidence in the euro – and its value has soared.

How are online sellers affected?

UK online retailers are likely to feel the pinch on both sides as their imports from the US and China become steadily more expensive, and sales made in euros equate to fewer pounds when they’re converted into Sterling. 

UK sellers importing stock from the US or China

  • On Tuesday, 19 January GBP/USD fell below 1.42 for the first time since March 2009
  • Sterling has lost more than 7% against the dollar over the last month
  • With fewer US dollars more costly to purchase, your stock instantly goes up in price
UK sellers selling to European markets

  • Mr Carney’s comments also affected the EUR/GBP rate
  • The GBP/EUR rate has fallen into the 1.2000s, and further losses still are forecast
  • You’ll get fewer pounds for your euros when you come to convert your euro sales back into Sterling
UK online retailers are likely to feel the pinch on both sides as their imports from the US and China become steadily more expensive, and sales made in euros equate to fewer pounds when they’re converted into Sterling. 

What's next?

The last six months have clearly demonstrated that international currency movements are closely linked and the volatility that we are witnessing is likely to extend into the foreseeable future. Online sellers who trade large volumes internationally cannot afford to simply take a ‘wait and see’ approach until the dust settles.

Many UK sellers trading overseas will not have any strategy in place to deal with the kind of volatility we have seen this year, and that leaves their profits at risk. Given that the economic outlook is far from settled, it’s a good time for sellers to consider their current foreign exchange exposure and take the appropriate steps to hedge against significant changes in rates.

Sterling is likely to suffer from continued pressure in the mid to long-term, and in part that’s thanks to a looming referendum on the UK’s future membership of the European Union. You only need to look at the levels of volatility in the lead up to last year’s Scottish referendum to know that the markets don’t react well to change – or even to the possibility of change – and the potential for Sterling to drop further still is real.

While a fall in Sterling value is likely to have an immediately negative impact on sellers listing items in the US and Europe, it’s possible that by monitoring the situation closely sellers will be able to take advantage of any upswings caused by increasingly volatile market conditions. Adopting a strategy that effectively anticipates market movements and times currency conversions for the best exchange rate will ultimately maximise any overseas revenue. Dedicating the attention to foreign exchange markets that is necessary is often outside of the scope of a busy online seller’s day but, with the help and experience that a dedicated foreign exchange dealer can provide, effective currency management needn’t cause headaches.

If you would like more information about maximising your profits from overseas sales and achieving better exchange rates for supplier payments, call our online seller team on +44 (0) 20 7847 9269 or email [email protected]

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