Reuters speaks with Amol Dhargalkar about the past year of FX volatility and how companies are seeking ways to lower hedging costs
Summary
Amol Dhargalkar discusses why companies face higher costs as they look to hedge volatility in the FX markets, while central banks raise interest rates in their fight against inflation.
Amol Dhargalkar in Reuters"There's a psychology and a desire not to lock in lows or highs, depending on which direction you're going on the currency."
Companies typically use FX forwards to lock in future exchange rates to minimize currency risks, allowing them to agree an exchange rate ahead of time.
As the Federal Reserve aggressively hiked U.S. rates, forward points have increased across many currency pairs containing USD, said Amol Dhargalkar, managing partner and chairman at Chatham Financial.
Refinitiv data shows that price on a three-month EURUSD forward rose to 65.52 in December from 20.61 in January 2022. For the British pound it was 23.77 from -5.70 for the same period.
"There's a psychology and a desire not to lock in lows or highs, depending on which direction you're going on the currency," said Dhargalkar.
Some companies are using options to protect against losses caused by exchange rates. This could mean they will benefit if currency fluctuations work in their favor.
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