If you think that Brexit outcomes will have little effect on small and/or midcap projects…consider this. Using Forex to forecast foreign currency behavior can keep managing costs of projects agile. Coping with the unforeseen or getting to know currency market unknowable(s) in an age where the global paradigm rewards anticipators of currency shifts, is smart. But ignoring market sentiment’s influence on currency punishes those who rely on the traditional quantitative malaise. Brexit stands as an example of how social outcomes are factors that can shift project costs.
1. Shadow banking influences 85% of daily loan activity and is a major participant in traditional short-term commercial paper trade. Currency rates fluctuate at any moment and influence financial market behavior. Whether an upscale clothing and accessories chain or a business that provisions global services. The price of renting money to meet daily operational cost and or fund a project may change in a heartbeat due to changes in global currencies and the interpretations of Forex trading. Phenomenon like Brexit will alter the behavior of shadow banking and its partnerships.
2. No matter the size of our project funds, the troubles of large global banking institutions, like Germany’s Deutsche Bank, can influence the availability and cost of preserving global liquidity.
There is anticipation of a Brexit led relocation of banks with the accompanying brain drain from the UK. It will have a ripple effect throughout local economies.
Contrary to current indicators of sustained economic growth, a recession will rear its head. A delimited pound will play itself out within the next year and will influence other global monies.
3. Realignment of trade agreements, influences of tariffs and the costs of imports play an important role in cost of supply. Will your supplier pass that additional cost down to you?
4. Even after finalization of the Article 50 agreement, the years of negotiating the messy divorce will and has diverted energy from the economy as it realigns trade agreements. Nervous businesses are already looking to reassert old trade agreements and create new ones inside and outside of the EU.
5. While the Brexit event has lowered pound value, making exports cheaper, supply side economics will soon slow the pace of good news markets.
Next to the US dollar and Euro, the pound is widely used globally as legal tender for goods and services. Sovereign currencies pegged to the Euro and the sterling will experience the slowing markets first. Costs to ongoing projects will be at the whim of changes in expenditures to supply and will influence demand.
6. In 2013, the EU had a population of 210 million making it the second most traded currency in the world. According to the IMF, the Eurozone has the second largest economy in the world. Because UK is a major trader within the single market, the Brexit will have implications to global monetary markets for generations. It would be pure folly to ignore Forex forecast of currency trends.
7. By reciprocal agreements with larger global banks and shadow institutions, all US banks have some exposure to European financial systems. Hedging rules apply. The further out to completion of project the heavier the risks to rate changes. Forex can alert project managers of changes in the fundamentals effecting rate changes.
Think about this. A sovereign’s coin is like a living organ that is reactive to any social or political irritant. While tracking hourly journals of Forex markets will not satisfy all of your quantitative efforts, it is an excellent bell weather of how foreign currencies may influence your project scope.
The science of Forex forecasting offers the advantages of anticipating trending costs over the life of a project. That keeps a Project Manager nimble. Consider this. Market sentiment will increasingly shift global monetary performance. As in the Brexit, which has forever changed how we anticipate human economic behavior and its influence on money.