5 ways for British businesses to prepare for the French election

Jake Trask, FX Research Director at OFX, explains how British SMEs can prepare for a fresh round of uncertainty from the elections across the Channel.

With 2016 now behind us, it could be tempting to assume that political shocks may be a thing of the past. But you don’t have to look far to find the next storm brewing. This month, France is gearing up for a political showdown of its own – the Presidential election – and if things don’t go as planned, it could well be the next surprise to hit Europe.

Far-right candidate Marie Le Pen is now widely predicted to make it to at least the second round of voting. Given her position on both the EU and euro, a Le Pen victory would almost certainly affect British businesses trading with the country.

As a result, it’s a good idea to start planning for the potential market movements this could cause with a strong currency strategy, which could protect against any unexpected jolts between sterling and the euro.

Here are five ways British SMEs can prepare for a fresh round of uncertainty.

Assess your risk

If your business doesn’t trade directly with France, you may think the French election is unlikely to affect you. If Le Pen fails to win the Presidency, that may well be true… but if she does, the result could impact more than just the French economy, and the shock could be severe.

Le Pen has been clear that she will lead France out of the EU and return the country to its former currency, the franc, should she win the election. If this happens, it’s likely to hit the euro. Any British business dealing with Europe, or taking payments in the single currency, could be affected.

If you trade with Europe but aren’t sure how you could be affected, it’s best to consult an expert who can take a look at your individual circumstances and help you choose the best approach.

Stay on top of the news agenda

The French election process works differently from our own, so it’s crucial that you’re aware of the timelines, so you know when you need to have plans in place. Put the following in your diary:

  • 23rd April: First round of voting
  • 7th May: Second round of voting (Le Pen could be knocked out at this stage)
  • 11th May: Election results announced

Each of these stages – in addition to opinion polls along the way – could have an effect on the market, so it’s worth doing your best to get a strong currency strategy in place ahead of time.

Some experts are predicting that even before the first round of voting, we could see capital flight from France to safe havens, as investors try to move their money away from the risk. This uncertainty could see the euro lose value – and following a Le Pen victory, we’d likely see an immediate devaluation of the single currency.

Of course, should Le Pen drop out of the Presidential race, we could see the euro rebound significantly as market confidence returns to Europe. This, too, could impact your business. A stronger euro would devalue the pound – and for British businesses importing from Europe, this could make life difficult without a strong currency strategy.

Choose a trusted payment provider

The current situation is complex and uncertain, so it’s worth seeking the support of a specialist currency partner to help you through it.

Selecting a specialist partner will require doing your homework, but will reap benefits in the long term. It’s worth looking beyond your bank, as often, you won’t be getting the best rates from them – or any specialist currency support.

Do your research, comparing specialist providers on their fees, rates and customer service, to help you make an educated decision.

Build a currency strategy using forward contracts, limit orders and spot trades

The ideal currency strategy depends on your company’s appetite for risk, as well as your specific circumstances. A specialist will help you choose from the following currency tools, or build a currency strategy from a combination of all three:

Forward contracts: This tool allows businesses to purchase foreign currency at the current rate, and agree to receive the funds at some point in the future – a good way to build a buffer against any future volatility that could negatively impact your organisation.

Limit orders: If you can wait for today’s exchange rate to improve, limit orders might be the way to go. These enable you to nominate a preferred exchange rate in advance. Your funds will be automatically transferred once that rate is reached by the market.

Spot trades: Made on the day at the current exchange rate, these transfers will often be used in combination with forward contracts and limit orders to create a strong currency strategy. You could decide to allocate some money to trade on the spot, so you don’t lose out if the exchange rate later moves in your favour.

Remember, preparation is key

Although many predict that Le Pen won’t make it past the second round, if 2016 taught us anything, it’s that you just can’t be complacent.

Preparing for all eventualities will enable you to give your business the best foundations for trade with Europe, regardless of who gets the keys to the Elysée Palace in May.

Jake Trask is FX research director at OFX, an international payments company.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.