The inauguration of president-elect Donald Trump is fast approaching. Ten weeks after he took the world by surprise by winning the US election, the 45thPresident of the United States is to be sworn in on Friday 20 January 2017. The uncertainties over his follow-through after inauguration will likely send currency markets once again into disarray.
Trump’s shock victory triggered extreme volatility in the markets, illustrating how companies should always try to hedge against change and surprises.
Companies will now be trying to second guess how Trump’s promises and pledges made during the election will translate into real economic policy.
While he has pledged to reform tax laws, cut regulation and protect American jobs – expected to be at the expense of free trade – many fear his policies could also lead to higher inflation, higher interest rates and strengthening of the dollar.
But Paul Langley, managing director of OSTC FX, warns that as the result of the US election itself proved, speculation is futile and it is better to plan for any and every scenario.
“Last year, many companies changed their positions on forwards contracts because they thought they knew what the result would be. That meant we saw billions of pounds gambled on an election that proved utterly unpredictable,” said Langley.
“For the many small UK firms trading in dollars, Trump’s economic policies and their implications pose real questions to importers and exporters alike. I recommend adopting a robust hedging strategy now.”
Since Trump was announced winner of the US election in November 2016, most of his team as well as a number of policies have been formulated. Yet his plans and how they actually pan out will have a massive impact upon the US Dollars’ worth, potentially making for a very volatile 2017 for US Dollar exchange rates.
“One thing companies can do is review their supply chain and better manage currency volatility by fixing the rates they get long term,” advises Langley.
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