Market Volatility: Corporate Strategies for FX Payments

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For corporate treasury teams, it can often be more challenging moving money than managing it when it’s in the register. As part of a new blog series, we will take a closer look at some of the macro events and currencies likely to have the greatest impact on the payments landscape in today’s volatile marketplace.

As finance specialists at multinational companies are well aware, international payments and transfers are an important piece of the cash management puzzle. In today’s globalized world, wages, capital expenditures, and other mission-critical cash flows often take place across borders and in multiple currencies. The challenge is that current turbulence across the currency markets leads to exchange rate fluctuations that expose such transactions to a high degree of risk.

Most of the events that led to global markets hitting the panic button this year reinforced the need for treasury teams to assess their cash management processes—especially where payments are concerned—and to avoid the potential threats posed by FX rate fluctuations. Companies transferring large amounts of cash daily are often aware of how fluctuating exchange rates may impede the day-to-day running of their businesses. This makes it extremely important to be vigilant about ever-changing market trends, watching out for global events that may have significant impact, and being very diligent about the execution of FX transactions.

In terms of events most likely to affect the international payments landscape in the months ahead, two will come from the U.S, where an upcoming presidential election and an imminent Federal Reserve rate hike is likely to set the tone for the Dollar exchange rate for the rest of this year and into next.

However, the U.S. is not the only country to play a part. The embattled British currency has somewhat recovered from its initial Brexit collapse but we are yet to witness what happens when it actually goes into effect after the Article 50 vote next year, although volatility can be confidently expected. Alongside this, a November OPEC meeting is likely to have an impact on oil prices, which could make huge waves in certain emerging markets, complicating the payments process further still.

Concerning individual currencies, it should come as no surprise that the most unpredictable currencies are also some of the worlds most actively traded, including the dollar, euro, pound and more. Going into 2017, it will be even more important to assess how companies manage traditional and international payments, the procedures and best practices to protect against currency movement, and best FX payment options for a variety of company sizes.

In the blog posts to follow, we will provide in-depth analysis of each the key macro events and major currencies that will most impact FX payments.