Smart strategies for managing currency volatility during budgeting
Ongoing turbulence in foreign exchange markets – driven by fiscal policy, global tariffs and geopolitical uncertainty – continues to challenge UK business leaders as they set their 2026 budgets.
Sharp shifts in currency markets can quickly derail even the most carefully planned budgets, and this year leaders are facing an exceptional period of instability. Volatility across major currency pairs has picked up again in 2025. For instance, GBP/USD moved from as low as $1.21 in January to near $1.38 in July, while EUR/USD has moved within a similar 17% range (source: Bloomberg). When finalising budgets, such movements can create material swings in input costs, export revenues and margin forecasts.
A small shift in exchange rates can have an outsized effect on performance. For example, a UK importer buying in euros could face cost increases of 5–10% on a single market move, while an exporter billing in dollars may see future profits eroded if sterling strengthens.
So, what should businesses keep in mind this budgeting season?
1. Define a clear FX budget rate
This makes it possible to separate operational performance from market movements. It’s important that all assumptions are realistic and based on current forward rates. Relying on last year’s figures can distort projections, as they may no longer reflect today’s environment.
2. Stress test your assumptions
A more resilient approach is to model potential movements of 5–10% in either direction. Understanding how shifts in sterling could affect profit margins helps align operational strategy with financial forecasting. Depending on a single, static foreign exchange rate could create challenges if volatility persists.
3. Connect FX risk to real business drivers
It’s essential not to choose an arbitrary rate for budgeting, but to connect currency risk management directly to underlying exposures and strategic objectives. For example, identify which currency exposures most affect cashflows or margins – as different exposures can impact different parts of the business.
4. Build in agility
The annual budget plan should be treated as a living document, reviewed and adjusted when currency movements breach agreed thresholds. The emphasis today is on flexibility and foresight, enabling businesses to adapt to the impact of policy changes or geopolitical developments.
See ahead, stay ahead.
Currency risk can’t be eliminated – but it can be managed. As businesses tighten their plans in a volatile environment, success will come from combining disciplined financial management with proactive strategies. Budgeting defines the course, but FX markets set the tides. The most prepared businesses are those that steer with awareness and confidence in both.
Important information:
The views expressed are those of the contributors at the time of publication and do not necessarily represent the views of the firm and should not be taken as advice or recommendation.
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