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The ongoing tariff war between the United States and its trading partners, including the European Union, has disrupted normal trade pipelines and led to instability in the price of foreign currencies.
Business owners, both local and international, now face the challenge of adapting their businesses to fluctuating foreign exchange rates. For Yorkshire entrepreneurs, adapting to these currency risks has necessitated banking on strategies like forward contracts, spread betting, or using platforms like OANDA to hedge risk and stabilise profits.
Currency Risks Yorkshire Businesses Face During Uncertain Times
Currency rates influence business rates and transactions, impacting everything from fees, logistics, and shipping to product pricing. The UK’s monetary policy and political engagements influence currency rates and directly impact businesses in all regions, including Yorkshire. For example, following Brexit, the United Kingdom’s withdrawal from the European Union, which took place in 2020, the pound depreciated significantly against other major currencies like the US dollar. However, it’s now stronger than before. In 2021, when the pound was experiencing high volatility and depreciation, imports became more expensive, leading to high costs for goods.
The same scenario is gradually playing out with the current trade war between the US and its trading partners, which has placed a constraint on global trade. According to the World Trade Organisation, the volume of world merchandise trade is expected to decline by 0.2% in 2025 due to a surge in tariffs and trade policy uncertainty. The currency risks propagated by the instability in global trade include disruptions in the supply chain, leading to delays in UK businesses receiving goods, and, in some cases, scarcity. This ultimately results in inflated prices due to higher costs and increasing operational expenses. To stay competitive in the market, Yorkshire entrepreneurs are using creative ways to keep their businesses thriving.
Strategies Yorkshire Entrepreneurs Are Using To Manage Currency Risks
- Forward Contracts
UK businesses sometimes use forward contracts to hedge against currency fluctuations, especially when the international scene is turbulent. Yorkshire businesses like JZ Flowers, which work closely with Aldi, a German international supermarket chain, to supply seasonal British bouquets, can decide to lock in exchange rates for future transactions using a forward contract. As a customised agreement between two parties to buy or sell an asset at a particular price on a future date, forward contracts are an ideal tool for hedging against currency rate fluctuations.
A UK business that buys goods from the United States can decide to open a forward contract with a bank to fix the EUR/USD rate today for a payment due in 3 months. Suppose the business buys goods from the US worth $200,000 at the exchange rate of 1.10 EUR/USD, with payment due in 90 days in a forward contract, and where the business would have to pay the locked-in rate regardless of market changes. When the due date arrives, the business pays exactly $200,000 regardless of which currency pairs strengthened or weakened in the time interval.
- Spread Betting
Although a more advanced and riskier strategy than forward contracts, some Yorkshire entrepreneurs engage in spread betting to hedge against inflation. Spread betting involves speculating on the future price of a currency or asset. Business owners with years of experience in the market often develop a market sense that allows them to predict how a currency’s value will change based on several economic factors. Such entrepreneurs can put their prediction skills to play by spread-betting on commodities like gold, agricultural products, oil, or other assets like stocks and bonds.
For example, a spread bet that longs gold $2,000/oz is based on the assumption that it will rise and yield a profit if gold rises, but results in a loss should gold fall. The amount the trader gains or loses depends on the leverage with which the trade was opened and the accuracy of the prediction. While spread betting holds the possibility of losses and gains, forward contracts are neutral and simply deliver at the predetermined rate. With spread betting tax- and commission-free, it remains one of the top strategies business owners exploit to earn passively and hedge against inflation.
- Forex Brokers
Forex brokers like OANDA can help local Yorkshire businesses, especially those involved in international trade, navigate currency risks efficiently. UK businesses like Rydale Country Clothing that operate locally in regions like Yorkshire and internationally need to stay on top of currency rate changes for profitable product pricing and seamless business operations. Forex brokers offer real-time exchange rate data to help entrepreneurs monitor fluctuations in currency rates to make informed business decisions in pricing, inventory, and supplier contracts.
Yorkshire businesses that deal in international markets are mostly obligated to make payments in the currency of the country they’re importing from, making it crucial to hold multiple foreign currencies. Foreign brokerage firms like OANDA provide multi-currency accounts to suit the needs of businesses that need to hold and make payments in foreign currencies. For instance, Skär Organics, a Leeds-based organic candle manufacturer, sells to the US and other foreign countries. Businesses like Skär Organics can invoice and accept payments in US dollars, then convert to pounds when rates are favourable for added profits.
Strategic Responses to Currency Challenges in International Expansion
Economic uncertainties are part and parcel of running a business, making it essential for entrepreneurs to develop strategies to thrive regardless of the local or global trade outlook. Many Yorkshire businesses like Skär Organics are expanding to international markets, and currency fluctuations can present heavy risks to business growth and success. Yorkshire entrepreneurs use forward contracts, brokerage accounts, and sometimes spread betting to monitor currency rates and hedge against fluctuations and inflation.
