Would you make strategic business decisions based on a Magic 8 Ball? No? Then why trust FX forecasts?

We ran a quick poll at EuroFinance’s recent International Treasury Conference 2024, and the verdict is in: FX forecasting is unreliable and doesn’t deliver the accuracy companies need. It’s also the biggest headache 87% of treasurers face in managing their FX risk (see chart 1). No surprises there…

Chart 1: Treasurers’ number one FX risk management challenge

The problem with FX forecasting

It’s not that forecasting models aren’t sophisticated – they are (well, some of them, anyway). But forecasts can’t keep up with the wild swings of global markets. No one can predict the unpredictable.

Even the big banks can’t get it right. Scotiabank’s predictions for GBP/USD in 2022 missed the mark by 27% in Q3 and 17% in Q4​. Morgan Stanley forecast the pound would fall to 1.14 against the dollar by mid-2024 but were off target by 12%​. 

Ouch…

For treasurers and CFOs, relying on predictions that consistently fall short isn’t just frustrating – it’s risky. But if everyone agrees that forecasting is cr*p, what’s the alternative?

Thinking differently

In a word: automation. But we don’t just mean automating FX workflows. Anyone can do that. We’re talking about automating the decision-making process around hedging, removing the need for FX forecasts altogether. 

Yep, you read that right. By using smart tech, you can easily set up hedging strategies that don’t rely on guesswork – but still protect you from adverse currency swings (and leave room for some upside).

So, instead of trying to time the market, an automated hedging strategy could convert currencies at regular intervals. This helps smooth out volatility by spreading your exposure over time, and in smaller chunks. Simple, right?

Or, you could set predefined best and worst-case exchange rates to automatically trigger hedging actions based on market movements. This protects you from extreme rate fluctuations while keeping your strategy flexible. It’s as easy as that.

Chart 2: Treasurers are wasting valuable time on managing FX risk

No more games of chance 

But automation isn’t just about efficiency (although it does free up a whole bunch of time too…think spending five minutes a month on this, not five hours a week). More than anything, automation is about certainty. 

It gives you a consistent approach that shields your foreign cash flows from adverse market shifts. And it has nothing to do with luck – and everything to do with smart strategy.  

Want to explore how automated hedging strategies could get you more predictable cash flows, without the guesswork? Drop us an email to help@bound.co, send us a LinkedIn DM, or sign up for a demo at bound.co – we don’t bite!