With ONS GDP figures showing that the UK economy decreased by 0.3 percent in August, compared to in July. A recession could be likely.
However, the possibility of recession and weakening GDP doesn’t necessarily sound the death knell for businesses. Managing currency exposure and minimising risk will be of key significance to ensure the viability 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 latest confirmation of Rishi Sunak to succeed her and causing further turmoil in the global economy and businesses must plan carefully to ensure the viability of their companies.
Currency trends and the implications for businesses
This year, the pound has seen an extensive amount of volatility leading to financial turmoil for the UK economy and businesses. Continued international tensions, rising costs for fuel, and the difficult political environment that is currently affecting the UK have been the main factors in the volatile markets that we have witnessed in recent months.
We saw the pound hit an all time lowest in relation to the US dollar as a host of tax cuts and spending measures were announced in the Chancellor Kwasi Kwarteng’s minibudget in September. The pound fell close to 5%, it fell to its lowest price ever of $1.0327 as confidence in the currency and economy of the UK sank all over the board.
While GBP briefly climbed following the announcement by Jeremy Hunter to reverse Kwasi Kwarteng’s tax cut, the resignation of UK PM Liz Truss, subsequent government changes and the possibility of the possibility of a snap election are expected to further increase uncertainty into the markets for currency, placing increased pressure on small companies.
And with such high volatility comes an equal level of risk for businesses dealing in Sterling. For exporters and importers especially the event of a sudden change in exchange rates can see the profit-making deal lose value, or in extreme situations, it could turn into an extremely risky one that actually results in losses. Additionally, when it comes to transactions and making payments, minimizing the risk involved when transacting in several currencies is vital to ensure not only profitability but also client and stakeholder relationships.
Business owners can take steps to safeguard themselves against FX market volatility
With seemingly inexplicably high uncertainty in the market, and the constant fluctuation of currency an everyday occurrence and limiting risk to manageable limits is now a continuous task for small- and mid-sized businesses.
In such a scenario making plans to minimize exposure, and ensure longevity for your company is more essential than it has ever been. There’s several options businesses are able to use to limit risks associated with FX as well as help them keep in mind potential market opportunities.
While there is no indication that the UK’s political quagmire will end anytime soon and there’s no doubt more volatility in the pound to come in the upcoming months and weeks – which can mean increased risks for SMEs. Products that deal with FX such as forward currency contracts and Hedging services are beneficial to businesses seeking greater security in this period.
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By using a forward currency agreement, for example, a business can fix the exchange rate for the transaction or trade with a set rate. In this way they are able to put themselves in a better position to manage their income and expenses as well as establishing a better base to handle unforeseeable market changes and other external factors.
Many FX providers also offer services like spots trading, option and Hedging, which can assist businesses to minimise losses, and subsequently keep business relationships. Other tactics could include trading through alternative or additional markets, where there is less risk.
Whatever way you go as a company but making sure you have an experienced FX partner and detailed plan is an essential part of your strategy.
The advantages of working with a bespoke FX solutions supplier
With the plethora of FX brokers and fintechs on the market offering the same services it can be a challenge for businesses to find the perfect partner to fulfil their specific FX requirements. Efficiency and speed of service must be the primary focus of any successful relationship with an FX provider.
When choosing the best FX company, it’s crucial to think about two main aspects: what your current business needs are and what are the likely events in the future that could make it necessary to reduce your FX risk in the longer time.
A partner who is able to not just look ahead and assist you with anticipating market fluctuations and trends, but also look back at market trends in currencies and know the specific needs of your business will be invaluable in today’s world. While many banks tend to take the FX market in a reactive manner, Moneycorp has built a distinct position around providing its customers with their own specific requirements. In reality, this means that we inform our customers of future market events prior to when they occur – not just after – and give them the necessary tools and information to take action when they need which in turn reduces the risk of losses.
In the end, it all comes down to being prepared the situation of uncertainty. Understanding your options for your business, as well as the FX services that are available to you are two essential steps for making sure that you’re prepared as you can be for whatever is thrown your way. It’s about knowing the things you can, and preparing for the things you cannot.