With ONS GDP data suggesting that the UK economy decreased by 0.3% in August compared to one month ago, the possibility of a downturn could be likely.
But the risk of recession and declining GDP will not necessarily be the death knell to businesses. Controlling currency exposure and minimizing risk is of vital significance to ensure the viability of businesses.
Then, we have significant economic events , such as the ongoing War in Ukraine, the recent resignation of Liz Truss as Prime Minister and the fresh announcement of Rishi Sunak to succeed her which are also adding additional turbulence to the global environment, businesses will need to be aware of the sustainability of their organisations.
Changes in the currency and their implications for businesses
This year, the pound has seen an extreme amount of volatility leading to economic turmoil for the UK economy and businesses. The ongoing tensions between the world and the United States, the rising fuel prices and the political turmoil within the UK have contributed to the volatility of market conditions we have seen in the past couple of months.
In the last few days, we saw the pound make an all-time lowest relative to US dollar as a series of tax cuts and spending measures were announced by Chancellor Kwasi Kwarteng’s mini budget in September. The pound plunged almost 5% to its lowest rate ever of $1.0327 as confidence in currency and economy of the UK sank across all sectors.
While GBP briefly rallied after the reversal by Jeremy Hunt of Kwasi Kwarteng’s tax reductions the resignation of UK the Prime Minister Liz Truss, subsequent government restructuring and the possibility of an election in a snap are likely to throw even more risk into the market for currencies, placing increased pressure on small companies.
And with such high volatility comes a corresponding amount of risk for businesses that trade in Sterling. For importers and exporters specifically the sudden shift in exchange rates can see an otherwise profitable transaction suddenly decrease in value or, in extreme situations, it could turn into an extremely unprofitable deal that can lead to losses. Additionally, when it comes to the transaction and payment, reducing risk when transacting in multiple currencies is vital to ensure not only profitability but also customer and stakeholder relationships.
Businesses can take steps to mitigate against FX market volatility
With this seemingly endless uncertainty in the market, and the constant fluctuation of currency regular occurrences managing risk within acceptable limits is now a continuous task for small- and mid-sized businesses.
In such a context planning ahead to limit exposureand ensure the that your business’s sustainability is more important than it has ever been. Thankfully, there are many options that businesses are able to use to limit risks associated with FX while also helping them keep an eye on opportunities in the market.
With no signs that the UK’s political situation is likely to be resolved in the near future it is likely that there will be that there will be more volatility in the pound to come in the coming months and weeks, which could mean greater risks for SMEs. FX products like forward currency contracts as well as hedges can be beneficial for businesses seeking greater security in this time.
Through a forward currency contract for instance the business can decide the exchange rate for any transaction or trade with a set rate. In this way they will be in a better position to manage their income and expenses as well as establishing a better basis to take on unpredictable fluctuations in the market as well as other external influences.
Many FX companies also provide services such as spot trading, options and Hedging that can help businesses minimise losses, and subsequently keep relationships with clients. Another option is to trade via additional or alternative markets with less risk.
Regardless of the way you go as a business However, making sure that you have a trustworthy FX partner as well as a comprehensive plan in place must be an integral part of your business plan.
The benefits of working with a custom FX solutions provider
With a plethora of FX providers and new Fintechs available providing similar services It can be difficult for a business to find the best partner to fulfill their specific requirements in FX. Efficiency and service should be the main focus of any successful FX relationship.
When you are looking for the ideal FX Partner, it’s crucial to think about two main aspects: what your current demands are in your business as well as what is likely to happen in the future that might make it necessary to reduce your FX risk in the longer term.
A banker who is able to not only look ahead and help you anticipate market fluctuations and trends, but also look back at currency markets and understand the unique needs of each customer will be extremely valuable in today’s landscape. While many banks tend to take the FX market in a reactive manner, Moneycorp has built a distinct position around being proactive in helping its customers meet their specific needs. In practice that means we notify our clients of possible market developments before they happen – not after and give them the tools and knowledge to be prepared to act in the event of a crisis, and in turn minimise the losses.
In the end, it all comes down to being prepared the situation of uncertainty. Knowing the options available to you as a business, and the FX services available to you are two important aspects to ensuring you are as equipped as you can be for whatever is thrown at you. It’s about knowing what are able to do and planning for what you aren’t.
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