With ONS GDP figures estimating that the UK economy fell by 0.3% in August against in July. A recession appears likely.
However, the threat of recession and a declining GDP does not necessarily mean the death knell to businesses. Managing currency exposure and minimising risk are of paramount importance for the survival of companies.
Now, there are significant economic events , such as that ongoing War in Ukraine, the recent resignation of Liz Truss as Prime Minister and the recent announcement of Rishi Sunak as her successor – also adding further turbulence to the global economic environment, businesses will need to be aware of the long-term sustainability of their businesses.
Trends in currency and the implications for businesses
Since the beginning of the year the pound has experienced a significant degree of fluctuation that has caused chaos for the UK business and economy. Continued international tensions, rising fuel prices, and the political turmoil across the UK have all contributed to the volatile markets that we have witnessed during the past few months.
We saw the pound reach an all-time low relative to US dollar as a series of spending and tax reduction measures were announced in the Chancellor Kwasi Kwarteng’s mini budget in September. The pound fell more than 5% to the lowest rate ever of $1.0327 as confidence in the currency and economy of the UK sank all over the board.
As GBP briefly gained momentum following the decision of Jeremy Hunt to reverse Kwasi Kwarteng’s tax-cuts, it was the resignation UK Premier Minister Liz Truss, subsequent government restructuring and the possibility of the possibility of a snap election are expected to throw even more volatility into the currency markets which could put greater stress on small-scale enterprises.
With such a high degree of fluctuation comes a similar amount of risk for businesses dealing in Sterling. For exporters and importers particularly the event of a sudden change in exchange rates can see the profit-making deal be ruined, or in extreme cases, become a highly unprofitable one that actually results in losses. Additionally, when it comes to the transaction and payment, reducing risk when transacting in multiple currencies is crucial for maintaining not only financial viability but also customer and stakeholder relationships.
Businesses can take steps to mitigate against FX market volatility by using FX solutions
With such seemingly endless uncertainty in the market, and the constant fluctuation of currency an everyday occurrence, keeping risk within workable limits is now a constant issue for small and medium-sized enterprises.
In this scenario, planning ahead to minimise risk, and to ensure sustainability for your business is more essential than ever. There’s various solutions that companies are able to use to limit risk from FX while also helping them keep an eye on opportunities in the market.
There is no sign that the UK’s political situation will resolve anytime soon There is no doubt that there will be that there will be more volatility in the pound to come over the coming weeks and months – that means greater risks for SMEs. FX products like forward currency contracts and hedge services could benefit companies looking for more security during this period.
With a forward-looking currency contract like this one the business can decide the exchange rate for any transaction or trade with a set rate. Through this they are able to put themselves in better position to handle their income and expenses as well as establishing a better foundation from which to deal with unforeseeable market fluctuations and other external variables.
Many FX firms also offer services including the spot market, trading options and Hedging, which can assist businesses to minimize losses, and ultimately maintain business relationships. Alternative options could be to trade using alternative markets with less volatility.
No matter what direction you take as a business, however, ensuring you have a trustworthy FX partner as well as a comprehensive plan is the main focus of your plan.
The benefit of using a custom FX solutions service
With the plethora of FX brokers and fintechs that are providing similar services it can be a challenge for businesses to locate the right partner that can meet their specific needs in terms of FX. Service and efficiency should be the key to any successful relationship with an FX provider.
When you are looking for the ideal FX company, it’s therefore important to consider two key things: what your immediate business needs are and what are the likely events in the near future that may require you to minimise your FX risk in the long term.
A banker who is able to not only look ahead and assist you with anticipating market volatility, but also look historically at currency markets and understand the specific needs of your business will be essential in today’s market. With many banks often taking an approach to FX that is reactive, Moneycorp has built a distinct position around proactively supporting its customers with their specific needs. In practical terms, we alert our customers to the possibility of market volatility before they happen – not after – and give them the necessary tools and information to take action when they need and reduce losses.
In the end, it all comes to being prepared in the face of uncertainty. Knowing the options available to you as a company, and the FX services that are available to you are the two most important steps to being as prepared to handle any situation that comes your way. It’s about knowing what you cando, and being prepared for what you won’t be able to.
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