Western Union Business Solutions
The nights are drawing in, the thermometer is testing out temperatures it hasn’t seen for a while and the sun isn’t quite sure if it’s coming or going.
The theme of uncertainty is matched in our political and economic landscape as well.
At the time of writing Brexit has been pushed back to 31st January and a general election has been called. Some are criticising the lack of focus on wider issues but with a deal on the table and parties’ political agendas set accordingly the election effectively becomes a final opportunity for the public to vote again to leave or remain in the EU.
Currencies don’t like uncertainty and now that a no deal is very unlikely the pound has gained back some strength and is trading against USD and EUR at levels not seen in six months.
That said, wider global factors always affect major currencies and the fact that China cancelled the APEC meeting in November raises questions about the prospects of a possible US-China trade agreement (the agreement was supposed to be signed at this meeting).
Recently Martin Wolf the chief economist from the Financial Times highlighted that “Italy, Spain and Germany are all now in trade surplus and are therefore reliant on exports; this means the impact of China and the US implementing tariffs and reducing imports is a major issue for the EU and puts pressure on for a recession…”
Currencies are regularly trading with five percent volatility in a month which can have a truly significant impact on the bottom line for businesses who are trading internationally.
As an example, GBP weakened almost 6% against USD in October and on the value of one hundred thousand dollars this is over four thousand five hundred pounds variation.
Products such as forward contracts or options can safeguard budgeted levels from this uncertainty and the key message has to be around protecting budgets to enable the business to focus on it’s core purpose ie manufacturing or services.
History tells us that at some point we will see another recession, however, in the words of Martin Wolf “recession is a great time to launch a new business driven by cheap labour, time and property”.
Basically, Chicken Lickens fears of the sky falling in may figuratively come true but an entrepreneur will realise that now is a good time to set up a business selling umbrellas!
A specialist broker such as Western Union Business Solutions (WUBS) can help businesses protect themselves from currency volatility.
Speak to us today for a free, no obligation health check and to learn more about how to save time and money when trading internationally.
Western Union Business Solution