With ONS GDP figures estimating that the UK economy declined by 0.3 percent in August, in comparison to the month of July, recession is likely.
But, the risk of a recession and a weakening economy isn’t always the death knell to companies. Controlling currency exposure and minimizing risk are of paramount importance for the survival of companies.
Now, there are significant economic developments – like current War in Ukraine, the recent resignation of Liz Truss as Prime Minister and the recent announcement of Rishi Sunak to succeed her and causing further turmoil in the global economy companies must be aware of the long-term sustainability of their businesses.
The impact of currency trends for companies
This year the pound has experienced an extreme amount of volatility which has led to financial turmoil for the UK business and economy. The ongoing tensions between the world and the United States, the rising fuel prices and the tense political climate within the UK have contributed to the volatility of markets that we have witnessed over the last few months.
Recently, we witnessed the pound hit an all-time lowest in relation to the US dollar after a number of spending and tax reduction measures were announced by the Chancellor Kwasi Kwarteng’s mini-budget on September. The pound plunged almost 5% to its lowest level ever, $1.0327 with confidence in the currency and economy of the UK sank all over all sectors.
The GBP briefly climbed following the reversal by Jeremy Hunt of Kwasi Kwarteng’s tax cut, an resignation by UK Premier Minister Liz Truss, subsequent government changes and the possibility of an election in a snap are likely to add more market volatility and put pressure on small-scale businesses.
With such a high degree of risk comes a significant degree of risk for companies that trade in Sterling. For exporters and importers particularly the sudden shift in exchange rates could see an investment that is profitable suddenly decrease in value or, in extreme instances, turn into an extremely unprofitable deal which can result in losses. Additionally, when it comes to transactions and making payments, minimizing the risk of transacting with multiple currencies is essential to maintain not only profitability as well as client and stakeholder relations.
Businesses can take steps to protect themselves from FX market volatility
With the seemingly never-ending uncertainty in the market and the extreme fluctuations in currency becoming an everyday occurrence managing risk within acceptable limits is a constant issue for small and medium-sized enterprises.
In this context making plans to minimize risk and ensure long-term longevity for your company is more crucial than ever. There are many options that businesses can utilize to reduce the risk of FX as well as help them keep on top of opportunities in the market.
There is no sign that the political crisis in the United Kingdom will be resolved anytime soon There is no doubt that there will be that there will be more volatility in the pound to be seen in the coming months and weeks – which can mean increased risks for SMEs. FX products like forward currency contracts as well as hedge services could benefit companies looking for more security during this time.
Through a forward currency contract such as this it is possible for a company to fix the exchange rate of any transaction or trade with a set rate. In this way they will be in an ideal position to better manage their income or outgoings and build a solid base to handle unforeseeable market volatility and other external factors.
A lot of FX providers offer services such as spots trading, option, and hedges to assist businesses reduce losses and keep business relationships. Another option is to trade through alternative or additional markets that have less risk.
Whatever option you choose to pursue as a company but ensuring that you have an experienced FX partner and a detailed plan is an integral part of your plan.
The benefits of working with a custom FX solutions service
With the plethora of FX companies and fintechs on the market providing similar services It can be difficult for businesses to locate the best partner to meet their specific needs in terms of FX. Efficiency and service should be the main focus of any successful relationship with an FX provider.
When choosing the best FX supplier, it’s therefore crucial to think about two main aspects: what your current requirements are for your business and what are the likely events in the near future that may make it necessary to reduce your FX risk over the long time.
A partner who can not only anticipate market trends and assist you in anticipating market volatility as well as look back at the market for currency and comprehend the specific needs of your business is essential in the current market. Many banks are taking an approach to FX that is reactive, Moneycorp has built a distinct position around actively supporting customers in meeting their specific needs. In reality, this means that we inform our customers of possible market developments before they occur – not just after and provide them with the tools and knowledge to take action when they need and, in turn, minimize the risk of losses.
In the end, it all comes to being prepared in the situation of uncertainty. Knowing your options as a company, and the FX options available to you, are two crucial steps to making sure you’re as prepared as you can for any situation that comes at you. It’s all about knowing what you cando, and being prepared for the things you cannot.
Menu