Rate alert: Weak euro affects UK businesses

The theme of this year has been the slide of the euro against the US dollar and the British pound. Europe’s ailing economy has been battered by deflationary risks and lacklustre growth, which forced the European Central Bank (ECB) to start a monetary stimulus scheme on 9 March. 
 
As a result, the euro fell more than 10% against the Greenback and by around 7% against Sterling.

The causes

 
Pressure from the ongoing Greek debt saga, which first surfaced around five years ago, is mounting. Greece’s membership in the EU has been uncertain for some time and that has affected investor confidence. 
 
The likelihood of a Greek exit from the Eurozone is rising, according to data from investment bank Morgan Stanley. It says that there’s a one in four chance that Greece will exit the Eurozone in six months’ time, a risk which the bank says is increasing. 
 
Even in Germany, the most successful economy in the EU, investor confidence has failed to regain the highs seen in early 2014. The ZEW Economic Sentiment Indicator, released on 17 March, rose to a 13-month high but failed to match expectations, in part due to Greece’s debt woes.
 
Europe’s economic recovery has failed to match those of its counterparts in the US and UK, with the ECB only just moving to adopt a quantitative easing strategy – more than six years after the Bank of England and the US Federal Reserve enacted their own programmes.
 
The strength of the UK and US recoveries is creating difficult conditions for international sellers and planning is needed if one wants to succeed.
 

The forecasts

 
The future downward trend for the euro is widely expected to remain, as the ECB will buy around €60 billion of sovereign bonds with new money every month until it reaches its total target of €1.1 trillion. Analysts are predicting the euro will break past parity with the US dollar and plummet to lows not seen since late 2002.
 
However, the stellar rise of the Greenback could be unsustainable, especially since it’s making it hard for US businesses to maintain former levels of profit. While the US economy will continue to grow, and a potential rate rise remains on the horizon, if the US dollar remains in a prolonged climb it might force the Federal Reserve to devalue it through monetary policy action.
 
There are many factors that could affect businesses in the UK and EU, but making sure you survive any currency fluctuations is a top priority.
 

The solutions

 
You could find your business shedding profits due to the unfavourable exchange rates we are experiencing right now, but there are number of immediate solutions available to reduce these losses.
 
Certain tools, when used by experts, can mitigate the risks of volatile currency rates. Forward contracts allow you to reserve a rate at which you’d like to make a transaction in the future, so you can then do business while having peace of mind.  
 
Further savings can be made by reducing the costs of imports by making full use of currency movements.
 
Rate watch means you'll be contacted wen the currencies you're interested in reach the trigger rates you have identified, while limit orders allow you to make your transaction when the rate suits you. They are handled by experienced brokers, who provide you with expert support over the phone.
 
If you’re attempting to hedge the risk of currency fluctuations, or transfer funds without incurring significant losses, then the wise decision is to find a currency specialist who can offer your business a tailored service.
 
To make sure your business plan is reaching its goals and getting results, book a 60-minute free consultation with one of our currency experts today.
 
We will take the time to evaluate your company in order to understand its processes, objectives, and what primary benefits it can gain from our expert services.