The euro has already appreciated by more than 11 per cent against the dollar – Finnish companies are reacting quickly
The currency market has once again demonstrated its unpredictability. The euro has appreciated by more than 11 per cent against the dollar this year. Although OP's analysts predict that the price trend will stabilise towards the end of the year, uncertainty will remain higher than usual.
The appreciation of the euro, the single currency of the euro area, against the US dollar, the Chinese yuan and the British pound is challenging Finnish export companies, whose profitability is linked to exchange rate movements. During the current year, the euro has appreciated by more than 11 per cent against the dollar, almost nine per cent against the yuan and around six per cent against the pound.
The currency market’s unpredictability has led investors and companies to increase their hedging activities globally. In April, in the aftermath of US President Donald Trump's "Liberation Day" tariff reforms, daily trading volume in the currency market reached a record $10 trillion.
"The currency market phenomenon at the beginning of the year, meaning the weakening of the dollar, had significant effects on companies' results. Changes in currencies important to Finnish companies may also have an impact on profitability and competitiveness in the last quarter of the year," says OP's Senior Strategist Ilkka Saksa.
Hedging has become a stronger focus for companies
"For large companies, currency hedging is part of everyday risk management, but the volatility of the currency market has turned attention to the content of hedging policies, such as hedging ratios. Smaller companies, meanwhile, have become more aware of the need for hedging. The tariff episode has galvanised companies into more active currency hedging," says Tuomas Lehtonen, Director, Large Enterprises at OP Markets.
On average, Finnish companies are very vigilant about currency hedging, and the interest in hedging against exchange rate fluctuations is also visible at OP Pohjola. In January–October, the volume of currency hedging has increased by almost a fifth compared to the same period last year.
"There is also a significant increase in hedging activity in individual currencies. An example of this is the Chinese yuan, which, along with the dollar, has depreciated significantly against the euro," says Lehtonen.
Finnish companies are increasingly trading in the buyer's preferred currency, which is typically the buyer's home currency. This is because trading in the home currency is more advantageous for the buyer, and the Finnish company thus makes the purchase easier and more affordable. At the same time, it means that Finnish companies have more trading currencies and need for hedging. Furthermore, the development is eroding the dominance of the US dollar as competing currencies gain a foothold in international trade.
"Properly implemented hedging stabilises cash flow and improves business predictability. In trading, currency is also a way to make trading more attractive to buyers," Lehtonen says.
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