White paper perspectives on FX 2020

and Risks of Fluctuations in the FX Market
2020 Economic Outlook

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CHANGE l PAYMENTS l FINANCIAL SERVICES

III. CEO INTERVIEWS
1. RUDY ACHACHE, CEO, BENSIMON
2. GEOFFROY ROUX DE BÉZIEUX, CHAIRMAN OF CHRONO LOISIRS
15
19ABOUT IBANFIRST
II. CURRENCIES AND HEDGING
1. EUR / USD
2. EUR / GBP
3. EUR / JPY
4. EUR / CHF
5. EUR / CAD
I. THE MAJOR ISSUES IN 2020
1. GLOBAL GROWTH REMAINS SOFT IN 2020
2. INFLATION IS STILL NOT BACK
3. CENTRAL BANKS REVIEW THEIR TARGETS
4. CHINA REMAINS ON ITS GUARD
5. THE SCENARIO OF RECESSION IN THE USA BECOMES MORE REMOTE
6. PERSISTENT EUROPEAN WEAKNESS
7. GERMANY IS DEALING WITH SIGNIFICANT STRUCTURAL CHALLENGES
8. FRANCE FACES A REVERSAL OF POLARITY
9. GEOPOLITICAL RISK REMAINS A BACKDROP
10. LOW FX MARKET VOLATILITY IS THE NORM
11. THE DOLLAR INDEX (DXY) MOVES INTO BEARISH TERRITORY
03
10
1 21
INTRODUCTION BY OUR CEO
TABLE OF CONTENTS

Don’t defy risk, manage it!
Any company, whether small, medium, or large, that carries out foreign currency transactions
is exposed to a currency risk that may have a significant impact on its business margins.
To guard against this, international firms must anticipate any market movements and put in
place an appropriate hedging strategy.
Geopolitical risks, Brexit, and trade tensions between China and the US are just some of the
factors that might influence the FX market in 2020. Moreover, the major trends in the global
economy and the FX market that emerged in late 2019 look likely to continue to apply this year.
Our foreign exchange experts provide you with a comprehensive overview of the global
macroeconomic outlook to help you anticipate the currency risks your company may face
in 2020.
Do not miss this opportunity to identify and minimise your exposure to currency risk.
Our experts are at your disposal to tell you more about our solutions.
Pierre-Antoine Dusoulier
INTRODUCTION BY OUR CEO
2 20
www.ibanfirst.com | hello@ibanfirst.com

1. GLOBAL GROWTH REMAINS SOFT IN 2020,
AT AROUND 2.9% OVER THE YEAR
2. INFLATION IS STILL NOT BACK
The stabilisation phase that began in the autumn looks set to continue but the manufacturing
sector and global trade seem likely to maintain their downwards trajectories. With the exception of
highly export-dependent economies, like Germany, the risk of the weakness in the manufacturing
sector spreading to the service sector appears exaggerated. A slight uptick in growth cannot be
ruled out, but it will be highly contingent upon the implementation of an economic policy that
combines monetary and budgetary stimulus. It is in this latter area that uncertainty prevails.
At this stage, no major developed economy, Japan apart, has implemented a budget policy that
is expansionary enough to raise hopes that growth will strengthen in the coming months.
Intuitively, you might think that the rise in protectionism will spark a rise in inflation.
In reality, the mechanisms that cause prices to increase in the economy are more
complicated than they appear. Inflation as a result of protectionist barriers is perceptible,
for example in the case of washing machines imported by the United States from China.
However, aggregate inflation is still at dramatically low levels in most developed countries,
and is even falling in some Asian countries.
Usually, emerging countries have the highest levels of inflation. But even in this group
of countries, inflation is falling. Since 2017, consumer prices in the BRICS (Brazil,
Russia, India, China and South Africa) and in Indonesia have been growing at around 3.5%
a year, whereas they had been growing at over 7% on average several years ago.
Low inflation is first and foremost structural, reflecting the impact of new technologies,
accumulating debt and an ageing population, and will make the job of central banks
significantly harder in the coming years.
3 20

3. CENTRAL BANKS REVIEW THEIR TARGETS
The paradigm shift in 2019 (fears of recession which were stealthily eclipsed by a possible
return to growth) can mainly be attributed to central banks. According to our calculations,
in 2019 nearly 70% of the world’s central banks began a cycle of rate lowering and/or quantitative
easing (purchase of securities in the market, as the European Central Bank (ECB) did). Remember,
exactly one year earlier, the US Federal Reserve (Fed) raised the prospect of new rate rises in
2019. The opposite scenario came to pass. We think the cycle that began at the start of the year
will continue over the next 12 months with new rate reductions. We expect the Fed to reduce
rates in March and think the ECB might follow suit in the first quarter, if the situation deteriorates
further in Germany.
Moreover, faced with the challenge of low inflation, central banks are now in the process of
reviewing their targets. The ECB started to do this in December. This very wide-ranging process
might result in a change in the criteria used to calculate inflation (incorporating property prices)
and dwelling on the role of central banks in the fight against climate change.
In practical terms, in its securities purchases we might see the ECB giving preference to bonds
from environmentally friendly corporations, or giving more financial support to the European
Investment Bank, which is strongly committed to projects that meet ESG (Environmental,
Social and Governance) criteria.
4 20

4. CHINA REMAINS ON ITS GUARD
5. THE SCENARIO OF RECESSION IN THE USA BECOMES MORE REMOTE
The slowdown in the Chinese economy will continue in 2020, as a result of the trade war and growing
difficulties in its financial sector. In recent months, there have been a growing number of signals of
stress in China’s financial sector: bank runs affecting a number of regional banks, and an unprecedented
number of debt restructurings among public corporations. In addition, China seems reluctant to open
up the credit floodgates to stimulate its economy, as it might have done in the past. The drawbacks
of a credit-driven recovery (accumulation of debt and a record-high private sector debt service ratio) now
outweigh the benefits (lower rates and increased liquidity in financial markets). Besides, China seems
to want to keep its monetary and budgetary policy powder dry in case the trade war with the United States
lasts longer than anticipated.
Advanced indicators, which make it possible to identify turning points in the cycle 9 to 12 months in
advance, do not point to an imminent recession in the US, but rather a slowdown in economic growth.
The most observed advanced indicator is the one published by the Conference Board. In its latest
estimate, it slowed to 0%. It is also clear that the American industrial cycle is in a slowdown phase.
The manufacturing index, changes in which reflect companies’ results, is contracting, having hit
56.6 last January. This fall is in large part a consequence of the trade war. As well as these negative
aspects, it is worth noting that domestic demand is still positive. In 2020, as was the case in the first
three quarters of 2019, the US economy should be well buoyed by consumer spending. The only point
that deserves special attention concerns corporations’ investment spending, which has contributed
little to growth in recent quarters and probably won’t bounce back in a hurry, due to a lack of optimism
among business leaders. Our 2020 scenario for the US economy is as follows: growth of around 1.5%,
inflation which remains contained at below 2% annually, and an unemployment rate which should stay
below 4%. In itself, this is an excellent economic performance given that the US economy is at the end
of a cycle.
5 20

6. PERSISTENT EUROPEAN WEAKNESS
Eurozone growth looks likely to be close to flat in the fourth quarter of 2019, compared with quarter
three. Some countries are outperforming others, such as France, Spain and Portugal, which should be
more resilient in 2020 than other EU member states. Germany risks bringing up the rear because of
accumulating short-term and structural problems. Since 2018, the country has continually flirted with
recession and managed to avoid it in 2019 thanks to an uptick in external demand from the UK and
Turkey. Domestically, confidence indicators still look upbeat and, most importantly, German consumers
are still showing a high willingness to spend.
However, the worst is perhaps to come for the country. In the short term, the German economy will
likely continue to be hit hard by the consequences of the Chinese slowdown. China is its main trading
partner, with a total trade volume of some 200 billion euros. Recent indicators are not reassuring:
German exports to China are down more than 8% and this trend does not look set to reverse any
time soon.
6 20

7. GERMANY IS DEALING WITH SIGNIFICANT STRUCTURAL CHALLENGES
8. FRANCE FACES A REVERSAL OF POLARITY
For several years, we have been seeing a deterioration in the quality of German GDP.
Government spending is now higher than domestic demand and private investment, which
makes business leaders less confident in the future. In addition, unwisely allocated R&D
investment will be a long-term drag on growth in Germany. The country is very well positioned
in terms of worldwide R&D investment. Nevertheless, more than half of this investment is in
the currently struggling automotive industry, resulting in chronic underinvestment in the
information and communications technology sector (software, telecom, etc.). This explains why
Germany is lagging behind in these key sectors, especially compared to Asia in general and China
in particular. It would be an exaggeration to say that the country is the new sick man of Europe,
but what is certain is that Europe will have to find a new locomotive.
The French economy again looks set to be one of the most resilient in Europe this year with
growth of around 1.1% (slightly down on 2019), which is close to its potential. The prospects for
recovery are low because the immediate environment is still in the doldrums, especially Germa-
ny. Unlike in previous years, growth will be driven far less by investment and more by consump-
tion. Added to which, budgetary measures, some of which have been brought forward to take
the sting out of the “yellow vests” crisis, should support short-term demand but will do nothing
to release the structural brakes on the French economy (particularly the high level of taxation).
Uncertainties around Brexit should be less of a drag on economic activity. The agri-food sector
is the most exposed in terms of exports, but we should remember that even if the UK exits
the EU at the end of January 2020, nothing will change during the one-year transition period.
In fact, Brexit should not put downwards pressure on the French economy in the coming year.
7 20

9. GEOPOLITICAL RISK REMAINS A BACKDROP
Brexit, Elizabeth Warren’s potential victory in the Democratic Party primaries, the American pres-
idential elections and US-China negotiations will continue to hit the headlines. It is worth noting
that the impact of geopolitical risk on the main currencies has weakened in recent months. The FX
market has got used to the risk of the trade war and traders are fully aware that new tensions could
arise at any moment. In the last two years of the trade war, there have already been four truces.
We are in the middle of the fourth, which began on 11 October 2019 and will culminate in the
forthcoming signature of the Phase 1 agreement covering a limited number of disputed subjects.
The previous three truces began on 20 May 2018 (lasting 9 days), 1 December 2018 (155 days) and
29 June 2019 (17 days). In 2020, the Japanese yen should again fulfil its role as barometer of the
state of negotiations between Washington and Beijing, as it has done in recent months. As a result
of the looming US presidential elections, we expect new tensions between China and the United
States, which will likely be reflected on the currency market by episodes of risk aversion.
8 20

10. LOW FX MARKET VOLATILITY IS THE NORM
11. THE DOLLAR INDEX (DXY) MOVES INTO BEARISH TERRITORY
This is a direct consequence of the growing balance sheets of central banks and their carefree
interventionism, which is giving rise to complacency on the part of market actors and a failure
to price risk fully into exchange rates. In more simple terms, the currency market is to a certain
extent anaesthetised. The phenomenon is affecting all the main currencies, but EUR/USD in
particular. Implicit volatility, which reflects the market’s expectations regarding changes in the
pair, is at an all-time low. During the 25 November 2019 session, EUR/USD ticked up and down
within a range of only 20 pips (price interest points), the lowest daily fluctuation range in 20
years. This low volatility is a historical anomaly, but might last into 2020 if the central banks
continue to intervene massively in financial markets.
Soft growth, increased uncertainty concerning the outcome of the US elections and President
Trump’s stated preference for a weaker dollar might result in a longer-term fall in the DXY in 2020.
In any case, the majority of analysts believe this is the most likely scenario and it makes sense
to us. If it came to pass, it would be quite good news because the global economy needs a weak
dollar, in particular all those economic actors who are in dollar debt.
9 20

As you will have realised, we do not expect major movements in the EURUSD pair during the first
quarter of 2020. Throughout 2019, the pair drew little interest from investors, which resulted in
abnormally low volatility compared to the long-run average. From the point of view of fundamentals
in the eurozone, the outlook for growth and inflation remains poor, which will encourage the
European Central Bank to maintain its accommodating stance. The inability to get back to the 2%
inflation target will probably force the institution to make another reduction in the deposit rate, by
10 basis points during the first part of 2020. Historically, a reduction in the deposit rate has tended
to apply downward pressure on the euro exchange rate. This is one more reason to maintain our
bearish stance on the EURUSD pair, within its long-term range of 1.08 to 1.1250. The main marker for
this pair will certainly still be ultra-low volatility.
How to hedge against exchange rate exposure?
1. EUR / USD
Improvement in global growth
and international trade.
Stabilisation of German growth.
Rise in the eurozone’s current account surplus.
Worries about the US presidential elections in the event
of a Warren-Trump battle.
Successful post-Brexit transition.
Reduction in the deposit rate by the European Central
Bank.
Resurgence of political risk (trade war, risk of a no-deal
Brexit, etc.)
Recession in Germany.
Continuing Chinese slowdown.
II. CURRENCIES AND EXCHANGE RATE HEDGING
10 20

The honeymoon period was short indeed for sterling. The Conservative party’s victory
in mid-December’s early parliamentary elections offered the British currency short-lived
respite. The Brexit timetable is now known. The UK should formally leave the EU at the end
of January 2020, but negotiations with the EU to reach a new trade agreement are already
raising concerns among investors. The UK government wants to put an absolute one-year
limit on negotiations, which specialists regard as quite simply unachievable, given the
numerous highly sensitive subjects to be addressed. In a climate still marked by a high
level of political uncertainty, we cannot rule out a correction to sterling in the first quarter
of 2020.
2. EUR / GBP
Improvement in global growth and international trade.
No-deal Brexit.
Bank.
Successful post-Brexit transition
11 20

The yen was the perfect yardstick of trade negotiations between the United States and
China in 2019. It looks set to fulfil this role again in 2020. Despite the announcement of
the forthcoming signature of a Phase 1 agreement, there is a strong chance that tensions
between China and the US will rise again in the coming months. There are several reasons
for this. Firstly, China’s commitments to buy American agricultural produce seem outsize
compared to the Chinese economy’s actual needs. Secondly, the electoral period in the
US will probably lead Donald Trump to harden his rhetoric. We should therefore expect
trade war-related risk aversion to be a major factor in the changing state of the FX markets
this year.
3. EUR / JPY
Bank.
Brexit, etc.).
12 20

The Swiss franc is still where we expected it to be. Despite the economic slowdown and
the real risk of deflation in the Confederation, the Swiss franc should remain within its
current range of 1.08 to 1.12 versus the euro for a large part of 2020. The Swiss National
Bank (SNB) is now intervening sporadically. This shows that the Swiss authorities are
comfortable with the current exchange rate, and that market pressure has reduced
considerably compared with last summer. Should geopolitical risk rise, the SNB still has
plenty of room for manoeuvre (either by euro buybacks or by reducing rates) to ensure
that this range holds.
4. EUR / CHF
Bank.
Interventions of the Swiss National Bank in currency
exchanges.
Brexit, etc.).
13 20

The highlight of 2019 for the Canadian dollar was the fact that the Bank of Canada (BoC)
was one of the few banks to successfully ride out the trade war and the global slowdown
without cutting interest rates. At its last meeting, it reaffirmed its commitment to keep
rates unchanged at 1.75%, basing its argument on the improvement in domestic economic
data. It was the ninth consecutive meeting at which the central bank had decided to keep
monetary policy unchanged. While many analysts reckon the BoC will be forced to follow
the US Federal Reserve, it seems clear the BoC is not on the same page. As well as US
monetary policy, we will also have to watch the changes in raw material prices. The recent
rise in energy prices has provided a little support to the Canadian dollar but nobody
expects a much more exaggerated rise in the coming months. The weakness in global
demand is having a direct negative effect on the raw materials market and, indirectly, raw
materials currencies like the Canadian dollar. Our target rate for EURCAD in quarter one
2020 is 1.46.
5. EUR / CAD
Reduction or stability in energy prices.
Bank.
Rise in raw material prices.
14 20

III. CEOS INTERVIEWS
BENSIMON
VISIBILITY TO PROTECT MARGINS
Currency hedging is crucial for companies for which product imports from overseas are
a major part of their business. Bensimon imports some of its raw materials from Asia.
It buys them in dollars, but revenue is generated in France, in euros.
Why do you have a currency hedging strategy?
All our exchange transactions concern the purchase of our raw materials, in Asia. Specifically,
the more we pay to exchange currency, the less margin we will have on our finished products.
Fluctuations in the EURUSD rate can therefore have a profound impact on forecasts for a year.
That’s why we decided to implement a currency hedging strategy: we determined a budget
exchange rate, which means we can know precisely in advance the costs of our supplies over the
year. This allows us to protect our business strategy and, ultimately, our business margin.
What proportion of your exchanges do you hedge for each currency?
Our aim is to limit our exposure, by protecting a proportion of our business margin, but still to
benefit from market variations. That’s why we set a budget rate, which is the rate around which
we buy dollars in order to be in step with our financial projections for the year.
We decided to lock in a currency budget meeting 50% of our needs at this budget rate, and even
a little over it, allowing us to absorb a fall in the EURUSD rate.
Do you anticipate making adjustments during the year and what volumes are involved?
The strategy we adopted when setting the budget rate allows us to make adjustments during
the calendar year. With iBanFirst, we have put in place alerts that trigger when EURUSD rises,
so that we can benefit from this more advantageous rate while also smoothing out the market
performance, and also when parity falls, so as to understand the economic context of this
movement and decide on a new hedging strategy. In terms of volumes, we bought dollars worth
2 million euros in 2019.
What hedging methods can you use against foreign exchange risks?
To help forecast our cashflow and protect our margins, we have taken out flexible forward
contracts based on the budget rate I mentioned earlier.
15 20

What advice would you give SMEs exposed to exchange risk?
To protect themselves against it! When you’re a business leader, you have a whole host of
subjects to deal with. Adopting a currency hedging strategy allows you to both protect your
actual business margin and avoid stress when it comes to paying suppliers. This gives you peace
of mind and the ability to focus on other matters.
Beyond currency exchange considerations, why did you choose iBanFirst?
Before iBanFirst, we worked with a conventional bank. Our transfers took 3 to 5 days to go,
whereas it’s instant with iBanFirst. We’ve really increased speed, and relations with our suppliers
are all the stronger for it! Added to which I would highlight more simplicity, greater transparency
and more advantageous prices. A real winning combination!
“We style your family and your house from head to toe!”
Rudy Achache, CEO, Bensimon
For more than 30 years, Bensimon has been a brand of ready-to-wear and French-style
lifestyle, whose iconic tennis has made its reputation. The founders were also pioneers
in opening the first Home concept store in 1989. Today, the brand has more than 45
points of sale in France, Belgium and Germany, and also has an art gallery
and a design bookshop.
16 20

CHRONO LOISIRS
Geoffroy Roux de Bézieux, Chairman of Chrono Loisirs
Geoffroy Roux de Bézieux, a long-standing telecoms entrepreneur, has also invested in
a number of companies such as Chronocarpe, an e-commerce site that sells carp fishing
equipment. He shares his experience of international payments with iBanFirst.
Why did you choose iBanFirst instead of a conventional bank?
We buy a lot of equipment abroad, especially in Asia, to the value of around $800,000 a year.
A number of transfers are carried out and the traditional banking system did not meet our needs
and in any case was very expensive both in terms of foreign exchange fees and transfer fees.
That’s why the iBanFirst solution appealed to us.
How has iBanFirst changed your daily life?
We send purchase transfers via iBanFirst, which takes a fixed commission. This completely online
solution performs better and is better value. We had a cost problem, a speed problem and
an information dashboard problem. In all three cases, iBanFirst came up with good solutions.
A final word?
As in many cases, an SME doesn’t always have easy access to innovative, technological solutions
because it is not necessarily informed. The savings that iBanFirst and other fintech companies
can offer are certainly very useful for SMEs, so contact between fintech companies should be
increased, on the one hand, and the SME world is a good topic of economic policy.
17 20

ABOUT IBANFIRST
In an increasingly complex environment, corporations are struggling to master their global
financial transactions.
Asaresultofvolatility,risingrates,currencywars,competitivedevaluationandtradeglobalisation,
corporations with global operations are faced with an increase in complexity. For example, from
its lowest point in 2017 to its highest point in 2018, the euro appreciated by 20% against the
dollar.
While price competitiveness is an essential asset, their financial operations must be under
complete control with regard to currency risk insurance, management of transaction and
exchange rate commissions, cash management, financing operations, or payments in any
currency, etc.
These companies, which were historically supported by retail banks in this regard, are currently
struggling to access global services for their financial operations.
Since its inception in 2013, iBanFirst has overcome all obstacles to payments and transfers of
money in foreign currency and has become the leading financial service aggregator with AISP[1]
and PISP[2]
accreditations, which are essential for this type of business. Thanks to its platform,
it currently combines technological, financial and regulatory expertise and a trusting relationship
with big banks.
[1] PSD2 approval for account information.
[2] PSD2 approval for payment initiation.
18 20

Document produced with the collaboration of:

William Gerlach – Head of Sales France and expert FX
wge@ibanfirst.com / +33 (0)1 86 26 09 26
Alexandre Laporte – Head of Hedging
alr@ibanfirst.com / + 33 (0)1 84 80 07 85
Publication date: January 1st, 2020
Copyright: This publication may be cited provided the source is acknowledged. Copyright ©
2020-2022 iBanFirst. All rights reserved.
Legal information :
PUBLICATION DETAILS
The information presented in this white paper is provided for information purposes only. It does not
contain any investment recommendation, investment advice, offer to sell, or solicitation to purchase,
and should not be used as a basis or taken into account as an incentive to engage in any investment.
It is up to you to assess this information yourself in the light of your personal situation. You remain
solely and entirely responsible for the use you freely make of this information and the consequences
of your decisions. iBanFirst makes no representations, warranties or representations, express or
implied, as to the accuracy, adequacy or completeness of the information provided. The information
presented here is subject to change without notice.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system
or transmitted in any form or by any means (mechanical, photocopying, recording or otherwise)
without the prior permission of the copyright holder.
iBanFirst is approved by the National Bank of Belgium as a payment institution.
19 20

NOTES
20 20

iBanFirst Bruxelles
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1050 Bruxelles
iBanFirst Paris
61 rue de Courcelles
75008 Paris
hello@ibanfirst.com
www.ibanfirst.com
© iBanFirst 2020-2022

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