With ONS GDP figures estimating that the UK economy decreased by 0.3 percent in August when contrast to July, a recession seems likely.
But the risk of recession and a declining GDP doesn’t necessarily sound the death knell to businesses. The management of currency exposure and the reduction of risk are of paramount importance in ensuring the sustainability of business.
Now, there are significant economic events , such as that ongoing War in Ukraine, the recent resignation of Liz Truss as Prime Minister and fresh acceptance of Rishi Sunak as her successor that are adding more turmoil in the global economy, businesses will need to be aware of the long-term sustainability of their businesses.
Changes in the currency and their implications for companies
This year, the pound has seen a significant degree of fluctuation resulting in economic chaos for the UK economy and business. International tensions continue to escalate, as do fuel prices, and the political turmoil across the UK have all contributed to the volatile markets we’ve seen in recent months.
Most recently, we saw the pound hit an all time lowest relative to US dollar when a slew of tax cuts and spending measures were announced by Chancellor Kwasi Kwarteng’s mini-budget in September. The pound plunged more than 5% to the lowest price ever of $1.0327 as confidence in the UK’s economy and currency fell all over the board.
However, GBP briefly gained momentum following Jeremy Hunt’s reversal of Kwasi Kwarteng’s tax-cuts an resignation by UK Prime Minister Liz Truss, subsequent government reshuffles and the possibility of an election in a snap are likely to throw even more risk into the market for currencies which will put more pressure on small companies.
In addition, with this high level of volatility comes an equal degree of risk for companies dealing in Sterling. For exporters and importers particularly the sudden shift in exchange rates could see an investment that is profitable suddenly go under, or in extreme circumstances, transform into a highly unprofitable one which could result in losses. In addition, when completing transactions and making payments, minimizing risk when dealing in multiple currencies is essential to maintain not only profit as well as client and stakeholder relationships.
Steps businesses can take to safeguard themselves against FX market volatility
With such seemingly endless uncertainty in the market and extreme currency fluctuations becoming a daily occurrence, keeping risk within workable limits is now a constant issue for small and medium-sized enterprises.
In such a context making plans for the future to reduce exposure, and ensure longevity for your company is arguably more important than it has ever been. There’s several options businesses can employ to mitigate risk from FX while keeping an eye out for potential market opportunities.
There is no sign that the political crisis in the United Kingdom is likely to be resolved in the near future, there is no doubt that the pound will experience more volatility to be seen in the coming months and weeks, that means greater danger for SMEs. FX products , such as forward currency contracts as well as Hedging services are beneficial to businesses seeking more certainty during this period.
Through a forward currency contract for instance the business can decide the exchange rate for any transaction or trade at an agreed rate. This way they will be in better position to control their outgoings or income as well as establishing a better base to handle unforeseeable market fluctuations as well as other external influences.
A lot of FX providers offer services including spots trading, option, and Hedging that can help businesses limit losses and maintain business relationships. Other tactics could include trading through alternative or additional markets that have less volatility.
Whatever option you choose to pursue as a business, however, ensuring you have an experienced FX partner and a thorough plan is a core part of your business plan.
The advantages of working with an individualized FX solutions supplier
There are a myriad of FX providers and new fintechs that are offering similar services it can be a challenge for businesses to find the best partner to fulfil their specific FX requirements. Efficiency and speed of service must be the main focus of every successful FX arrangement.
When choosing the best FX supplier, it’s therefore essential to take into consideration two important things: what your immediate requirements are for your business and what could happen in the near future that may need you to minimize your FX risk in the longer time.
A partner who can not only be able to look ahead and assist you in anticipating market movements as well as look back at currency markets and understand your specific requirements will be invaluable in today’s landscape. While many banks tend to take proactive approaches to FX, Moneycorp has built a particular position in actively supporting customers in meeting their own specific requirements. In practical terms, we inform our customers about future market events prior to when they happen – not after and provide them with the tools and knowledge to act when it matters, and in turn minimise loss.
In the end, it all comes down to being prepared the in the face of uncertainty. Understanding your options as a business and the FX solutions available to you are two important aspects to making sure that you’re prepared to handle anything that may come your way. It’s about knowing the things you cando, and knowing the things you cannot.
