Blog

“If AI can improve every forecast in your business, why is FX forecasting still largely judgemental?”Every CFO I speak to is investing in AI.a&gt; Sales forecasting. b&gt; Demand planning. c&gt; Inventory optimisation. d&gt; Working capital. e&gt; Cash forecasting.Yet one area is still surprisingly reliant on instinct, opinion and whatever the bank happened to say last week.Foreign exchange!The irony is that FX isn’t usually a forecasting problem.It’s a decision problem.Nobody consistently knows where EUR/USD or GBP/USD will trade six months from now. If they did, they wouldn’t be running a treasury department.But that’s often how companies behave.- Someone has a view. &nbsp;-The board becomes optimistic or pessimistic. &nbsp;- The market moves. &nbsp;- A hedge is delayed, accelerated or abandoned.The result isn’t better forecasting.It’s simply emotion dressed up as strategy.I think AI can genuinely transform corporate treasury. Not because it will magically predict exchange rates. It can dramatically improve the quality and consistency of the decisions surrounding them.Imagine an AI system that continuously asks questions such as:• How exposed are we today compared with last month? &nbsp;• What would a 10% currency move do to EBITDA? &nbsp;• Are we operating within our board-approved policy? &nbsp;• Have our budget assumptions materially changed? &nbsp;• Are we over- or under-hedged relative to our risk appetite? &nbsp;• Which decisions are genuinely new, and which are simply emotional reactions to market moves?Notice what’s missing.“Where will EUR/USD be in December?”That’s often the least useful question.The companies that manage currency risk best aren’t necessarily better forecasters.They’re better decision-makers. They have clearer frameworks. More consistent processes. Better governance. Less emotion.I suspect AI’s biggest contribution to treasury won’t be replacing judgement. It will be removing the noise that too often masquerades as judgement. Perhaps the future of FX isn’t an AI that predicts the market. It’s an AI that helps finance teams make better decisions regardless of what the market does. That’s a much more achievable and valuable goal.What do you think?Will AI eventually become a decision-support tool for treasury, or do you believe currency management will always remain primarily a human judgement?

If AI can improve every forecast in your business, why is FX forecasting still largely judgemental?

Make money in FX from low volatility....Low volatility is not just a market condition. It is a trade setup.When realised volatility falls, investors are encouraged to take more risk. Carry trades get larger. Option sellers become more comfortable. Vol-targeting and risk-budgeted portfolios can increase exposure.That can make low volatility self-reinforcing:Low vol -&gt; more carry -&gt; tighter ranges -&gt; lower vol -&gt; more carry.But the better opportunity is not simply to sell volatility.It is to ask:Which volatility is overpriced because the market is trapped, and which volatility is underpriced because the market is asleep?In FX, that question is especially useful. Some pairs are genuinely range-bound because policy, carry and flows are aligned. Others look quiet even though the catalyst set is improving.The trade is to sell the vol that should not realise, and use it to buy the vol that should.One expression of that idea is: Buy GBP/JPY movement, funded by selling GBP/USD movement. Using the 1-month option prices shown: GBP/JPY Buy the 50-delta put Buy the 50-delta call Sell the 10-delta put Sell the 10-delta callThat is a long GBP/JPY straddle, partly funded by selling the 10-delta wings.Then fund it with GBP/USD: Sell the 50-delta put Sell the 50-delta call Sell the 10-delta put Sell the 10-delta callConverted at the implied USD/JPY cross of roughly 161.4, that is worth about:The idea is simple:Own movement in GBP/JPY. Sell movement in GBP/USD.This is not just a directional GBP trade.&nbsp;It is a relative volatility trade.You want GBP/JPY to move more than GBP/USD. You are effectively saying that JPY is the currency where the real optionality sits because this is not equilibrium for the Japanese Yen, while GBP/USD is more likely to remain contained.The structure works if GBP/JPY breaks meaningfully while GBP/USD stays relatively range-bound.It struggles if GBP/USD starts moving hard in either direction, because the funding leg is short a lot of GBP/USD volatility.And because the 10-delta wings are sold, this is not a pure long-vol trade. It is long the middle of the GBP/JPY distribution and short the tails in both pairs, especially GBP/USD. Experience has shown me that even big moves need you to take profits in FX so selling the wings is sensible.That is the broader low-volatility lesson. In quiet markets, the best trade is often not simply “buy vol” or “sell vol.”It is: Sell the volatility that should not realise, and use it to buy the volatility that should.Or more bluntly: Sell gamma where the market is trapped. Buy gamma where the market is asleep.#FX #Volatility #GBPJPY #GBPUSD #Options #Macro #CarryTrade #RiskManagement

Make money in FX from low volatility....

<figure id="figure-8lfi16j2wpmrdntz79"><img id="8lfi16j2wpmrdntz79" src="https://cdn.durable.co/blocks/20UYifWcN4ZsZjHJBiAnJcK9VOu2LLMpOt7CnhrmOrrnhQM9ky0cVWfZHlzM5VGf.png" alt="" title="" class="object-cover bg-gray-100 " style="aspect-ratio: 16/9; object-position: 0% 50%;" data-corners="no-rounded" data-aspect="16:9" data-caption="" data-positionX="0%" data-positionY="50%" data-fullWidth="false"/></figure>How many G10 central bankers does it take to change a lightbulb?Just one. But they will hold rates steady for two years to see if the lightbulb changes itself.Central bank language is starting to matter again for FX, but not all “hawkish” signals are equal.I scored the latest G10 central bank communications using a language only framework across inflation concern, growth optimism, labour tightness, financial conditions, policy restrictiveness, forward guidance, growth concern and external vulnerability.I also double-weighted growth, because in this environment the question is not just “who sounds hawkish?” It is “whose economy can absorb tighter policy?”On this basis, the strongest language support sits with:USD NOK AUD JPY &amp; NZDThe key point is that USD screens best not because the Fed has delivered a fresh hawkish shift. It has not. The Fed minutes look more like hawkish continuity. But the Fed combines elevated inflation concern with the strongest growth language in the G10 set: solid activity, resilient consumption and strong AI-related investment.JPY is a special case. The 200+ % of gdp debt and currently rising rates puts it at idiosyncratic risk.The other important point: Europe is unloved in this framework.EUR, GBP, SEK and CHF all screen poorly or only neutrally.Why?EUR has inflation concern, but weak growth language. The ECB is worried about upside inflation risks, but also about downside growth risks, weaker confidence, tighter credit and energy-price damage. That is not a clean currency-supportive mix.GBP has a hawkish tail, with two BoE members voting for a hike. But the UK growth and labour language is soft: subdued underlying momentum, loosening labour market, weak demand and tighter household financing conditions. The market can respect the inflation risk while still disliking the growth backdrop.SEK has only modest support. The Riksbank acknowledges higher inflation risk and a greater probability of a rate rise later this year, but inflation is still below target and activity is weaker than normal. That makes the signal cautious rather than forceful.CHF is the weakest European signal. The SNB is at 0%, inflation is still within the price-stability range, and the central bank explicitly signals willingness to lean against excessive franc appreciation. From central-bank language alone, that is a clear headwind.

How many G10 central bankers does it take to change a lightbulb?

Doing nothing is still a currency decision.A surprising number of businesses believe they’re “unhedged” or “neutral,” when in reality they’re running a large, unintentional speculative position.I keep coming back to this: certainty has value.Too many management teams obsess over whether they got the absolute best FX rate, instead of asking the more important question:&nbsp;Did we improve budgeting confidence, pricing stability, and earnings visibility?The real goal of good FX management isn’t to maximise upside from currency moves - it’s to minimise the damage from adverse ones.Because in volatile markets, one lesson always holds:→ Markets can stay irrational longer than your business can stay exposed.The one goal is to build resilience and giving yourself the ability to operate confidently, no matter what the market does next.What’s one FX lesson you’ve learned the hard way? Activate to view larger image,&nbsp;

Doing nothing is still a currency decision.

Slow motion car crash.....Japanese debt.... FX hedgesI am sure a lot of you remember what it was like 2007 to 2008 anyone in a investment seat could see at least some of the GFC issues in markets but none of us knew how it would unravel.I am telling my clients to be fully buttoned up on fx hedges because the Japanese set up will be a large issue for all markets but FX escpecially.Why the crisis is already here.Current coupon payments mean......Interest / tax receipts: ~16% Interest / GDP: ~2.1% Interest payments: ~¥13.1 trillion Tax receipts: ~¥83.7 trillionUsing the current JGB curve;of the outstanding debt, the implied interest cost is closer to:~¥25.5 trillionThat would be:~30% of tax receipts !!!!!!!!!! ~4% of GDPWhat the history tells us.This table illustrates a pattern rather than a precise threshold:15–20%: Many sovereign crises begin if growth slows or borrowing costs rise. 20–25%: Outcomes diverge. Countries with strong institutions (Italy, Belgium) can survive; weaker sovereigns often lose market access. 25–30%: Extremely few large economies have sustained these levels. The principal exceptions are Italy and Belgium in the late 1980s and early 1990s. 30%+: There are essentially no major developed economies that have maintained this burden for long without debt restructuring, very high inflation, financial repression, or substantial external assistance.<figure id="figure-swlptcxz4wmrap43jf"><img id="swlptcxz4wmrap43jf" src="https://cdn.durable.co/covers/dB3D9BNARlj9FsKAEU4TFqAVGIMSsJCacK4VuA5O6LeUGrsCsznp77VRRdGE9Kto.png" alt="" title="" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 1/1; object-position: 0% 50%;" data-corners="default" data-aspect="1:1" data-caption="" data-positionX="0%" data-positionY="50%" data-fullWidth="false"/></figure>

Slow motion car crash.....Japanese debt.... FX hedges

One-size-fits-all works for ponchos, not currency risk.One of the biggest mistakes I see is treating every FX exposure as though it requires the same solution.It doesn’t.A coherent FX overlay recognises three distinct problems, each requiring a different approach.1. Finite, predictable exposuresThese are contractual cash flows or assets with a defined maturity. The objective isn’t active management—it’s certainty.Cross-currency swaps or long-dated forwards matched to the underlying exposure can lock in the economics for the life of the asset. Once in place, the carry is known, the path dependency disappears, and interim mark-to-market volatility becomes largely irrelevant if the hedge is held to maturity.2. Ongoing operational exposuresImports, exports and recurring cash flows don’t have a natural end date. Here, the goal is managing volatility rather than eliminating it.That often means rolling forwards with longer tenors (6–12 months rather than the default 3 months) and adjusting hedge ratios as carry, valuations and business risk evolve—not leaving them frozen at whatever level was approved years ago.3. Tail riskSometimes the downside matters far more than the average outcome. Used selectively, options can replace an uncertain stream of carry costs with a known upfront premium, reduce the need to re-hedge into stressed markets, and avoid the pro-cyclical behaviour that can make rolling forward programmes most painful when volatility is highest.The problem?Most organisations run only the second layer.Then they wonder why their FX programme delivers mediocre results.The best hedging programmes don’t ask, “What’s our hedging policy?”They ask, “What problem are we actually trying to solve?” and then return to that question regulalry. #ForeignExchange #FX #FXRisk #CurrencyRisk #Treasury #CorporateTreasury #TreasuryManagement #RiskManagement #FinancialRisk #CorporateFinance #CFO #FinanceDirector #FinanceLeadership #TreasuryStrategy #Hedging #FXHedging #Derivatives #Options #Forwards #CrossCurrencySwaps #CashFlow #WorkingCapital #InternationalBusiness #ImportExport #GlobalBusiness #CapitalMarkets #FinancialMarkets #BusinessStrategy #EnterpriseRisk #DragtenCapitalSolutions<figure id="figure-araef73msamraozz0v"><img id="araef73msamraozz0v" src="https://cdn.durable.co/blocks/28lQ01nM7QQUh5SQmKt1mMD7MNfkTXudLxM7SU4thOToYgSRnp1BpMNxfaHIRF5u.png" alt="" title="" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://cdn.durable.co/blocks/28lQ01nM7QQUh5SQmKt1mMD7MNfkTXudLxM7SU4thOToYgSRnp1BpMNxfaHIRF5u.png" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure>

One-size-fits-all works for ponchos, not currency risk

Dragten Capital Solutions

Core Positioning Statement
Dragten Capital Solutions helps internationally exposed businesses manage foreign exchange risk with institutional-level FX expertise — without the institutional cost.
One-Line Value Proposition
We help businesses reduce the hidden cost of currency volatility.
Strategic Positioning
Most companies have FX exposure. Very few manage it strategically.
Large institutions have treasury teams, macro specialists and sophisticated risk frameworks. Most mid-sized businesses do not — despite currency movements having a direct impact on profitability, margins and cash flow.
Dragten Capital Solutions bridges that gap by bringing institutional-grade macro and FX expertise into a practical commercial setting.