Insight to All Things Currency and Treasury Management

As Emmanuel Macron and Marine Le Pen emerge as the candidates for France’s presidential election, the need for currency awareness is greater than ever for multinational companies. Macron’s lead in the polls has many breathing a sigh of relief as there is now only one anti-euro candidate and the possibility of France leaving the Eurozone seems less likely. However, if we look to Brexit and the election of Donald Trump as president of the United States, it is easy to see the rise of populism and making business decisions based on poll information is dangerous and arguably speculative.

It’s Not All About the Euro

One can and should learn from the currency volatility that followed the Brexit vote and the election of President Trump. It is just as important as before the first round of voting to be aware of exposures, not just to the euro. One should not rely on the most recent reduction in volatility to relax nor should one have the false sense of confidence in the fate of France as a member of the EU. The testing of the euro as well as continous surprises and currency volatility will continue thru the German elections in September.

The one mistake corporates should avoid is focusing too heavily just on France’s impact on the euro. Companies need to focus on all their currency exposure and with a multitude of geopolitical events coming up, focusing solely on the euro is a dangerous game to play. Brexit didn’t just affect the sterling and the French election won’t just affect the euro. Most S&P 500 companies are exposed to more than 200 currency pairs and it is imperative for all corporates to understand exposures to all their currencies. We are seeing corporations increase hedge ratios for their balance sheet exposures ( 95%+ ) as well as their forecasted exposures to revenues and / or expenses ( increase by 20%+ ).

Breathe Easy on Election Day

Expecting Macron to be elected the next president of France is premature and overlooks the possibility Le Pen could emerge the victor. The one thing everyone can bet on – the winner of the French presidential election is not set in stone. Managing FX risk based on predicting a winner is saying one has learned nothing from Brexit. Corporates need to manage the risk to a level that the investors are comfortable with. Furthermore, the cost of protecting oneself needs not be demystified. Hedging for example the euro vs the US dollar for the next six months currently is very cheap, especially as compared to the potential risk.

While we do not know if Mrs. Le Pen or Mr. Marcon will be president come May 7, we do know Europe is going to have volatility and anyone who is willing to bet on the election one way or the other is speculating! Investors do not want to see surprises, negative or positive!