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digibyte - Post Brexit buyer advice

Den Howlett Profile picture for user gonzodaddy June 23, 2016
Summary:
Brexit is a mess for service providers. Hold back on buying decisions unless essential.

The UK referendum result that gives the UK 'Leave' campaign ostensible victory has immediate implications for software buyers both in Europe and the UK. Our advice - hang tough.What happened and what should you do?

Most software is denominated in US Dollars and so as a buyer, you take that on the chin. But when as we saw, GBP ranged from $1.43 to $1.51 on the day of the #Brexit vote and then dive to $1.35 then things get a bit different. Do you hedge? Have you hedged?

Normally, I would not bother with currency fluctuations. We've lived through 12% up and down the last three years, but over time it normally evens out. The #Brexit vote changed that. In a matter of hours the USD/GBP rates became very unstable and we know that Barclays suspended trading on stop loss contracts which are designed to minimize risk. I got calls from traders who are deeply worried about where this goes yet are willing to apply 'algo trading' systems to their positions. In short - there is no guarantee that the house wins. This is a new position.

From the buyer perspective, signing off on a a deal yesterday could possibly have been disastrous if you are paying in USD tomorrow. And there is no indication as of now that volatility will not continue or peter out. Forward currency values are being pegged in the $1.36 range, suggesting to me that no-one knows how this will play out.

But then I am also thinking  about those international organizations with HQ in the US that are trying to fathom EU setups. On its face, #Brexit should matter nothing but in reality, we now have a very uncertain trade and labor landscape.

Bottom line - unless you have a clear line of sight through to the cost of EU operations then the current volatility must be avoided. The only sensible thing to do right now is defer any decision until either there is more clarity and stability. Alternatively, if  you can take the inevitable costs on the chin then fine. Go ahead.

More to come.

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