Moneycorp: With host nations looking to excel in major sporting events this summer, can their currencies compete?

 

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With a number of major events coming up in the sporting world this year, leading foreign exchange provider moneycorp shares an outlook on the global currency markets in 2016. 

 

Undoubtedly the biggest event of the year is this summer’s Olympic Games in Rio.  Six years ago, when Rio de Janeiro was awarded the privilege of hosting the 2016 Olympic Games, the Brazilian economy was surging on the back of a commodities boom which drove Brazil’s currency – the real – to its highest level in a decade. 

 

Today, however, the situation has completely reversed, and Brazil’s economy is in crisis, hit by the brutal combination of a slowing Chinese economy, falling commodity prices and political instability.[1]  The real shed around 32.8% in 2015, making it the world's worst-performing major currency.   

 

So what impact will this have on the Games?  So far the main impact has been a freeze in ticket prices, resulting in some foreign ticket buyers (especially those paying in USD) paying higher prices than the rate reflects. 

 

Rio de Janeiro organizers reached an agreement 18 months ago with official ticket resellers outside Brazil to an exchange rate of 2.35 Brazilian reals to the dollar.  Since then, the value of the Brazilian currency has plunged about 70 percent, however Rio2016, the organising committee for the Games, have declined to adjust the initial rate to help cover the already stretched cost of hosting the Games.

 

"To balance revenues with expenditures, the (organizing) committee cannot be exposed to exchange-rate risk," Donovan Ferreti, director of ticket sales for the Rio Games, said in an email to The Associated Press. "Therefore the payment solution is based on a fixed-exchange rate."[2] 

 

Authorised ticket sellers, such as CoSport, which handles official ticket sales for a number of nations including the United States, Canada, Australia, Britain and Russia, have been given the option of fixing their contracts in dollars or reals.  Some countries, such as Germany, have therefore opted to pay in reals, whereas others, including Britain and the United States, have stuck with dollars at the fixed rate.  This all means there will be winners and losers even before the Games have started. 

 

There will be plenty of losers and winners elsewhere this summer, as France host the 15th European Championship tournament in France. 

 

The euro found life tough going for most of 2015. A series of major events – quantitative easing, Greek bailouts, elections and rate hikes to name but a few – have combined to push the single currency down by -10% against the dollar and by -6% against sterling.

 

Back in September, as hosts of the 2015 Rugby World Cup, England were expected to progress to the knockout stages. Thankfully, their early exit didn’t deter a despondent nation from spending their hard earned cash. UK retail sales figures came in well above expectation at 1.9%, owing to increased consumer spending during the tournament. The market reacted immediately and GBP/EUR rates headed towards 1.38. This move was certainly unexpected, but is a timely reminder of how fragile the eurozone and indeed the single currency remain.

 

By the end of the year, however, the dwindling expectation of a UK interest rate hike in the near future caused the euro, and every other major currency, to strengthen against sterling, which lost just over a cent and a half to the single currency. As 2015 drew to a close the euro continued to gain strength from sterling weakness, adding three quarters of a cent. It also beat the US dollar, but only by less than a fifth of a cent.  It began 2016 on the front foot – £1=€1.35 – thanks to an expansion in eurozone manufacturing.

 

With the Australian Open in full swing the safe-haven euro resembled a tennis ball in the full throws of a rally, as it was batted back and forth throughout January. It was sold, bought, sold, bought and sold again, with the decisive shot arriving from the Bank of Japan who unexpectedly cut its deposit rate below zero, handing a short-term victory to the supposedly risky commodity-orientated currencies, as the safe-havens fell out of favour.

 

As global stock markets struggle to maintain a more bullish outlook following weak Chinese data, the common currency could equally be shored up by increased safe-haven demand as we head further into 2016.

 

Indeed, it has been said that when China sneezes the rest of the world catches a cold. Sterling was feeling a little under the weather at the start of 2016, following another significant drop in the Chinese stock market – so significant in fact that Beijing ceased trading. Remember ‘Black Monday’ back in August, when sterling dropped nearly 5 cents against the euro? 

 

 

China’s depreciation of the yuan to its lowest level in five months, fuelled concerns that the slowdown in the Chinese market is worse than official data had suggested. The world´s second-largest economy is Brazil’s biggest trading partner, due to its high demand for commodities such as iron ore. The real lost 0.5% to 4.0294 per dollar as a result.

 

However, despite the yuan’s decline, Chinese Super League side Guangzhou Evergrande recently stunned the football world by breaking the Asian transfer record to sign Atletico Madrid striker Jackson Martinez.[3]  With a handful of other Premier League stars making a move to the Far East, it will be interesting to observe whether Chinese football will continue to flex its financial muscles on the same scale in the summer. 

 

Moneycorp has partnered with Major Events International to provide bespoke support for MEI members who have international payment requirements. If your business makes any transactions in foreign currency, whether exporting goods, being paid for services, or purchasing within a supply chain, contact the dedicated moneycorp lead for MEI Members, Tobias Woodward, on 020 3823 0526 or email This email address is being protected from spambots. You need JavaScript enabled to view it. , and find out how we could save you thousands.


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