Single Farm Payments are bringing volatility to euro:pound currency trading, says Richard de Meo, managing director of Foenix Partners
Since August, economic data from Europe has been swallowed up by fluctuating risk appetite as markets grapple with the doom and gloom of Chinese uncertainty and global equity market turmoil.
We are seeing a huge spike in trading interest in euros and sterling, with possible EU-related hedging going through the market, as well as UK companies looking to lock in the rate for their future conversion back to sterling.
This has risen from uncertainty due to the EU’s Single Farm Payments. The UK has more than 100,000 companies – typically farms or the agricultural arm of larger estates – that qualify for these European subsidies.
The actual payments are made at the turn of the year but, for those companies that elected to receive funds in sterling, the EU sets the conversation rate at the end of September – defined as the average of the month’s daily closing levels. For companies receiving funds in euros, their decision to manage the conversion themselves is only justified if they can outperform the EU’s rate.
As ever, the corporate sector, comprising just a corner of the market, will be caught in the crossfire of these bigger market forces.