Companies lock in value of pound

London: UK importers are taking advantage of the strength of the pound to hedge their overseas currency exposure and lock into the value of sterling, which hit fresh annual highs this week.

Currency brokers said there had been unusually high demand from UK small and medium companies for currency tools that allow importers to fix their exchange rate in advance. Buying these so-called forward contracts when sterling has gained in value can reduce the real value of the bill in the overseas currency.

Western Union's business payments arm said that the value of dollar transactions among its clients rose 72 per cent last week, as the pound appreciated sharply against the US currency. Transactions in the euro were up more than a fifth.

"We have seen a dramatic increase in clients purchasing the US dollar following the pound breaking the $1.60 (Dh5.80) barrier," said Neil Graham, director at Western Union.

Foreign exchange brokers say that corporates have tended to be more active in the currency markets when the pound hits $1.60 against the dollar, which is seen as a key psychological level.

Sterling rose above $1.60 on March 30 for the first time since the end of November, buoyed by haven demand in Europe and hopes that the UK will not introduce any further monetary easing. So far this year, the pound has risen 4.5 per cent against the dollar and 2.3 per cent against the euro.

"I'm keener to hedge now than I have been for a long time," said John Dobson, finance director at Timbnet, a timber importer based in Oxford with an annual turnover of £80 million.

UK exporters have also been stepping up their hedging, according to Corporate FX, the foreign exchange broker, amid confusion over the rise in the value of sterling following figures last week indicating that the UK was in recession.

‘Panicky'

"People are getting panicky that sterling might get stronger," said Mark Thompson, head of the corporate desk. "The fact we didn't see any weakness after the recession figures last week has frightened people on the export side."

However, corporate desks at investment banks said that larger clients, who can be slower to hedge currency exposure, were not yet stepping up their activity. HSBC reported that UK corporates were holding off from hedging at current levels in the belief that the pound could hit $1.65 against the dollar in the next few weeks.

— Financial Times