For most of the last two years, currency markets had settled into a predictable rhythm. Central banks were easing in step, inflation was falling, and businesses could plan their international payments around a fairly narrow set of assumptions. That rhythm has broken. The conflict in the Middle East has pushed energy and shipping costs higher, and the European Central Bank responded by raising interest rates in June, its first increase in three years. The Bank of England, watching the same inflation risk, has chosen to hold. The result is a policy gap between London and Frankfurt that is wider than markets expected just a few months ago, and a level of currency volatility that many finance teams have not had to plan for in some time.
If your business pays overseas suppliers, employs staff abroad, or holds revenue in a currency other than sterling, this shift matters. Not because anyone can predict exactly where rates go next, but because the range of plausible outcomes has widened. That is precisely the environment in which an unhedged currency exposure does the most damage.
When markets are calm, businesses can get away with treating FX as an afterthought, converting money when a payment is due and hoping the rate is roughly where it was last time. That approach is forgiving when movements are small and gradual. It becomes expensive fast when a geopolitical shock, a surprise rate decision, or a shift in inflation data can move the market meaningfully in a single week.
The current backdrop is a good example. Inflation driven by conflict abroad is not something either central bank can fully control, and neither the ECB nor the Bank of England has been willing to commit to a fixed path from here. That uncertainty tends to show up directly in how sterling trades against the euro and the dollar. Even businesses with modest overseas exposure can find that a single quarter's currency movement erodes a margin that took months to build.
When central bank policy becomes harder to predict, the cost of leaving your currency exposure unhedged rises with it. Certainty over your payment costs becomes more valuable exactly when the market becomes less certain.
The instinct in volatile periods is often to try to time the market, waiting for a better rate before converting. We would caution against this. Trying to call the top or bottom of a currency move is difficult even for professional traders, and the businesses that get hurt worst in periods like this are usually the ones waiting for a rate that never quite arrives.
A more reliable approach is to remove the guesswork from the parts of your business that do not need it. If you know you have a supplier payment due in three months, a forward contract lets you lock in today's rate for that future date, regardless of which way the market moves between now and then. If your payment schedule is irregular, a limit order lets you set the rate you are willing to accept and let the market come to you, rather than watching it every morning. Neither tool requires you to have a view on where the Middle East conflict goes next or what the ECB decides in its next meeting. They simply take that uncertainty off your desk.
It is also worth revisiting the exchange rate assumptions baked into your annual budget or pricing model. Many businesses set these once a year and do not revisit them until the next budgeting cycle. Given how much the policy backdrop has shifted since the start of the year, a rate assumption set in January may no longer reflect a realistic range. Building a small buffer into your pricing, or stress-testing your margins against a wider range of outcomes, is a cheap form of insurance against a market that has become genuinely harder to forecast.
None of this requires you to become a currency expert. It requires having the right conversation, early, about which payments matter most to your business and which tools make the most sense for protecting them. Geopolitical risk is unlikely to settle down quickly, and neither the ECB nor the Bank of England has given markets much reason to expect calm in the months ahead. If you have not reviewed how your business handles currency risk since this new volatility took hold, now is the moment.
Talk to our team about forward contracts, limit orders, and a payment plan built around your actual exposure, not guesswork.