Jeremy Cook, chief economist at international currency transfer specialist World First, takes a look at the factors that might influence international exchange rates in the coming year.

So far this year we have dealt with the start of the EU referendum campaign, the slowing of the Chinese and US economies, volatile oil prices and a European political system struggling under the weight of the refugee crisis. In short, 2016 has already been a busy year and we’re far from finished.

Over the second half of the year we will see a number of global events that could shake – and yes, stir too – the global economy, causing winds that could buffet small businesses. Naturally, these winds are most keenly felt by firms trading internationally but, in truth, they can affect all small businesses.

Far-flung causes, local effects

While the cause often takes place halfway around the world – take the Chinese slowdown or the race for the White House as examples – the effect on businesses both at home and abroad can be profound.

These events cause currency volatility, and if you buy or sell overseas, you will feel the impacts. The reality, however, is that the effects are almost impossible to avoid.

Currency volatility can affect you even if you are buying from, or selling to, someone who buys or sells overseas.

So, what does 2016 hold? These five issues will be ones to watch as drivers of currency movements over the course of the next 12 months or so:

1. The EU Referendum:

The campaigns are now live and there is a significant risk premium attached to sterling as a result. There is no precedent for this kind of political manoeuvre within the EU and the risks to growth, confidence and investment are already being keenly felt by the pound.

2. China:

The wheels on the world’s second largest economy are starting to wobble as it transitions from an economy based around cheap manufacturing to one reliant on consumption. The global effect of a slowing China is prompting concerns over international trade, and high-end retailers like Burberry have already seen profits slashed as a result.

3. The Federal Reserve:

Having raised interest rates in December the Federal Reserve has had to hold fire on further increases as markets have pitched and yawed. We do not see this lasting for much longer and expect additional divergence and subsequent volatility in the USD as the year continues.

4. Currency war:

Central banks cut interest rates to boost growth and make exports more attractive. Retaliation from others sees currencies devalued and a currency war breakout that could lead to failing economies, inflation and corporate bankruptcy.

5. Oil:

Oil prices have slumped in the past year but can they remain this low? Markets seem to think not, and a rising oil price will constrain growth in Western economies as consumer spending falls.

Of course, these shouldn’t stop your international expansion plan to become a mini-multinational, but you should tread carefully. You might want to consult an international currency expert, who can help you to protect yourself against these headwinds and any more that may occur in 2016.

By Jeremy Cook at worldfirst.com