2023 was a year shaped by high inflation, and as a result, has left many businesses uncertain about the future. Recent ONS data showed that small businesses, more so than larger businesses, have been expecting volatile turnover and prices.
However, currencies are also a concern in 2024, as volatility remains high due to the heightened activity of central banks.
Of those central banks, it is the Fed and the US dollar that are under the most scrutiny, often setting the precedent for others to follow. This week the S&P 500 both rallied and had a slump, with the Fed’s statements around interest rates remaining high for longer being the catalyst. On the same day as the Fed’s news broke, the dollar gained against the GBP.
All of these news stories impact everyday businesses. The attractiveness of currencies directly impacts conversion rates for businesses that buy and/or sell overseas. It’s not so much the direction of a currency pairing, but the volatility, which creates uncertainty surrounding pricing and cash flow. And, with that in mind, let’s look at 6 currency pairs that could pose a headache to business owners in 2024.
British Pound
The British Pound has been relatively stable in the recent period, but volatility is expected to increase compared to 2023. The core reason for this is that the Fed and Bank of England’s interest rate policy has been aligned for the majority of the year. Both have a high rate of 5.50% and 5.25% respectively, but this could soon diverge.
The interest rates are the closest point of comparison between the economies, otherwise the US has rapidly falling inflation, extremely low employment, and strong GDP growth. The UK on the other hand is faced with a flatlined economy with crumbling house prices, which could cause the Bank of England to be the first to drop interest rates – and thus likely see a currency devaluation.
It’s also important to consider that it’s election season for both countries, with Trump almost certain to be running. The announcement of shock results is always a guaranteed way to see vast changes to currency overnight, much like the day of the Brexit referendum.
Turkish Lira
The Turkish Lira had a very troubled year in 2023, as it was in freefall against its European counterparts. Turkey has suffered from rampant inflation, which is where the majority of this volatility has come from, along with economic policies and a devastating earthquake.
The currency is more calm than six months ago, but it’s still very difficult to predict when its debasement will stop. This could seriously impact textile businesses, of which Turkey is a large exporter. On the one hand, the currency debasement has made it cheaper for businesses to import supplies from Turkey, but the rampant inflation still means that prices are difficult to predict – which is not good for financial planning.
Lebanese Pound
Lebanon has a few different issues to contend with in 2024. Its economy has been in deep waters for a couple of years now, but the situation is made worse with its involvement in the Israel-Palestine conflict, of which Lebanon’s position is not supported by the West. This makes their currency weak, plus the economy is currently in recession.
With the possibility of escalating involvement in geopolitical matters, businesses involved with Lebanese partners may face challenges. The Lebanese Pound is traditionally pegged to the USD, but there’s been partial divergence recently with a growing informal and black market, making it high risk.
Israeli Shekel
Despite the conflict having greater ramifications and involvement in Israel than Lebanon, the Shekel may stand up more to adversity due to having an established economy and growing tech sector. Evidence of this is that the Shekel, whilst facing some volatility in 2023, ended the year at a similar price against the USD as it started.
With the conflict ongoing, greater stress has been placed on its promising startup culture and currency, of which a brain drain could be on its way. It’s common for Western businesses to do business with Israeli enterprises, and therefore it’s a currency that’s important to consider in 2024.
Chinese Yuan
China is a major supplier to businesses around the world, as well as a major importer from neighbours like Australia. 2023 painted a pessimistic outlook for China, as they tackled a vast housing crisis which unearthed a serious debt problem. With growing competition from India (Apple is already making the production switch), we might see the Yuan drop further against the dollar than it already has.
Volatility is consistently high between the USD and CNY, and it’s often a place where we see market manipulation, too. From cheap electronics to clothing supplies, this is a highly important and volatile pair to keep an eye on. Even if you do not have a direct Chinese supplier, you likely do somewhere down the supply chain and are thus affected.
Argentine Peso
Argentina is a huge exporter of meats and wine, meaning that its current issues are having an impact on retail and hospitality businesses around the world. Much like Turkey, the Argentine Peso’s volatility is a symptom of chronic inflation. The weaker Peso is making it very difficult for businesses and customers to import, and the black market is flourishing – so much so that the official establishments to buy the Peso are priced wrongly, and thus see no activity. While this could spiral into a greater problem, it’s a situation that has been normalised by now.
Businesses strategies to offset volatility
The core strategy for fighting against currency fluctuations is hedging. It’s a technique that companies aren’t often willing to use unless they absolutely need to — they want to be certain that there’s uncertainty. However, 2024 is likely to be an extremely eventful year, with many conflicts, elections, and changing economic policies. Besides the pandemic or large crash, 2024 appears to have all the warning signs of instability.
