How currency markets could impact UK fashion and textile businesses in 2025 

How will currency markets impact textile business in 2025?

This article was written in association with UKFT, the largest network for fashion and textiles in the UK. For more information about UKFT, visit ukft.org.

An unstable world

2025 has started with the world on uncertain ground. Donald Trump has just taken office for the second time, the European political landscape is shifting, and a handful of key global conflicts seem little closer to resolution.

It has been a turbulent time for the pound too. Sterling has fallen by around 2% against G10 currencies to begin the year after a crisis of confidence in the bond market, prompted by the autumn budget and higher government borrowing costs. Leading banks predict the pound could fluctuate by 10% against the euro between now and April.

These factors have contributed to a palpable sense of apprehension in currency markets. Since global markets are impacted by economic and political news as well as powerful narratives that build over time, the combination of various swirling forces has prompted a retreat towards the US dollar – so often the totemic safe-haven of the risk adverse.

Fashion and textile manufacturers and retailers are exposed to currency markets at almost every stage of their business model. Day-to-day fluctuations in prices make some orders cheap and others expensive to fulfil without the right risk management processes in place. Fashion and textile businesses could see their profit margins eroded this quarter and beyond by a potent cocktail of new risks.

Trade and tariffs: A new US government

President Donald Trump has threatened tariff increases and changes on a number of countries, including China, Mexico and even Canada. He has also spoken at broader changes to US trade policy and goods entering the US. UKFT is keeping a close eye on the incoming President’s trade policy and is in close discussions with the UK Government to ensure that it is on stand by for policy changes if and when they come down the line. In particular, UKFT is keeping a close watch on the US De Minimis rule which (as of 20 January 2025 at least)  allows UK and other non-US companies to ship goods duty free to consumers in the US up to a value of $800 per day.

UKFT has long expected that this rule would be changed or rescinded even under the previous administration and it would impact immediately and potentially and without warning on UK B2C shipments to the US. Similarly, UKFT is in discussion with HMG about what would happen if the US were to remove China’s MFN status or impose a broader blanket increase on duty from goods from outside the US.

For countries with a large volume in exports and close trade ties to the US in key industries or sourcing heavily from countries like China for onward shipping to the US, this scenario would likely see the price of textiles and materials in some markets skyrocket, leading buyers to look to other countries to ease the price burden.

While the threat of tariffs may raise questions about the Chinese yuan, it could potentially be a good thing for European textile purchases or countries like India and Bangladesh. As the situation can change quickly and without warning, manufacturers and brands amount of goods ready to ship or on the “high seas” which could be rejected on arrival. Eager to reduce the overall losses they make in this process, the coming years could see turmoil in some currency markets as some countries benefit more than others and UKFT has already reported that many larger companies and brands have been looking to protect and diversify their supply chains for the US market.

Looking ahead

Currency markets, along with the unfathomably complex and intermingled worlds of geopolitics and economics, are too unpredictable to trust. Any strategy that relies on a certain pricing without putting guardrails in place to guarantee that budget is exposed to risk.

Smart Currency offers a range of products to mitigate this. Forward contracts allow businesses to draw funds in a given currency at a guaranteed rate in the future. Spot contracts are a convenient tool to capitalise on advantageous market movements, while options give companies the flexibility to execute different strategies based on circumstantial developments.

UKFT is also advising members to tread carefully when offering Landed Pricing on goods where there is the potential for duty changes to impact on their goods without warning.

For an in depth look at what the next quarter has in store for currency markets, be sure to give our January-March Quarterly Forecast a read. Pairing currency predictions from leading experts with insightful analysis, the report explores how sterling and the euro will fare under any new tariffs and how global economy, and globalisation, has changed for good.  You can download the report free of charge  right here.