These days, watching equities and Forex
markets can make you motion sick. Thanks to COVID-19, our entire
business-as-usual infrastructure no longer functions as intended. Nobody knows
when we can get back to travelling, gathering, or shopping worry-free.
This fact has made investing – which relies upon participants being able to predict future events with relative accuracy – maddeningly tricky. Most investors are making wild assumptions about conditions 6-12 months from now. Some are outright gambling.
The result? Markets that are plagued by volatility. A quick look at VIX, an index which tracks the volatility of market movements, will show you how bad things are. In the before times (prior to February 2020), this measure sat in the teens. At the peak of the COVID selloff, it spiked to 82.69.
Now, things have calmed somewhat since then. However, markets still regularly move up/down by 2-3% per session. With second wave fears rearing their ugly head, it is more complicated than ever to trade stocks/currency safely.
Now more than ever, you need experienced professionals on your side. In this blog, we’ll show you how to find a corporate FX desk that can help you minimise your exchange risk.
COVID-19 Has Whacked the British Economy
Whilst COVID-19 is clearly a global disaster, it arguably has smacked the United Kingdom the hardest. For starters, we’ve suffered the third most deaths, with over 43,000 killed. With over 311,000 confirmed infections, our case fatality rate is over 14% – second only to Belgium in the developed world.
Sadly, our country locked down far too late. When we did, it had grave impacts on the economy. Services comprise roughly three-quarters of UK economic output. With restaurants, salons, and other personal service providers unable to open, annualised GDP sank by 1.6% YoY in Q1 2020.
Bear in mind, however, that Q1 included the pre-COVID months of January and February. As 2020 wears on, economists are projecting a massive YoY plunge in GDP. If we only have one wave of COVID-19, activity will tank 11.5% compared to 2019. If a second wave rises, that loss could widen to 14% YoY.
On the bright side, our government is
backstopping furloughed workers. Whilst unemployment has surged above 13% in
the US, it has remained around 4% here, thanks to the Coronavirus Job Retention
Scheme. If researchers develop a vaccine ahead of schedule, this maintenance of
people’s livelihoods could help jumpstart the post-COVID recovery.
Coronavirus also had a significant impact on the value of the GBP. Riding high after the resolution of Brexit, GBP/EUR nosedived from 1.19 to 1.06 during the COVID panic. At press time, GBP/EUR sat at 1.10 – about 7.5% off its 2020 high.
GBP/USD fared no better. After trading within a tight 1.28-1.32 band through the first two months of 2020, its price dived more than 10% to 1.15 in March. These days, GBP/USD is sitting around 1.23 – still about 7% below its pre-COVID value.
It’s Dangerous to Walk Alone
If you’ve looked at FX charts lately,
currencies are indeed on the mend. Like all economic prognostications these
days, though, their recovery is based on hope. Hope that we find effective
treatments/a vaccine soon. Hope that we’ll get “back to normal” by next
quarter. Hope that we can adapt to the new reality.
Any time that hope strengthens, currencies and equities surge. Any time developments cast doubt upon it, they plunge. These gyrations can wreak havoc on businesses with international supply chains/workforces. Just this month, for example, GBP/USD traded as high as 1.27 as optimism that the first wave was over.
Recent news from America threw cold water on that sentiment. Second wave fears drove GBP/USD down more than 3% to 1.23, where it sits today. Through all of June, GBP/EUR has traded in a 1.10-1.12 band. However, If the EU’s/our reopening suffers the same fate as America’s, another plunge could be in the cards.
Trying to make regular international transfers in this environment is like playing with fire. If FX markets move against you suddenly, they could do grievous damage to your cash reserves.
Corporate FX Desks Can Shelter You from The Storm
Volatile markets are not a novel phenomenon. Any business that’s been around for a while has dealt with them before. Rather than try to study finance on-the-fly, some of these enterprises have instead sought the assistance of corporate FX desks.
Leading corporate FX firms offer more than just cheap international money transfers. They provide corporate oriented functions that address the most common issues surrounding Forex.
Chief among them – the inherent
unpredictably of currency exchange rates. Even small fluctuations of less than
1% can have a significant impact on your bottom line. It may not seem that way
at first glance. However, if you regularly move thousands or even millions of
GBP, these losses can add up quickly.
For this reason, financially-savvy companies have been making use of forward contracts for years. These arrangements lock in an exchange rate for a transfer set in the future. The business doing the transfer gets cost certainty, and the FX firm earns a better margin – everyone wins.
Corporate FX firms also offer other tools, like limit orders and swaps. Limit orders let you set up a conditional transfer. If the exchange rate named in the contract happens, the trade executes at that price automatically. If you think the market will move in your favour soon, it’s a great tool to try.
Swap contracts work a little differently. In these arrangements, you agree to a fixed exchange rate, just as you could with a forward contract. However, throughout the agreement, you pay interest on the amount you receive. Meanwhile, your FX desk will pay you interest on the amount they get from you. When the contract matures, both parties send back the original amounts.
Which Online Corporate FX Desks Can You Trust?
When it comes to FX, the United Kingdom is lucky indeed – we have some of the best selection in the world. Of course, this abundance also presents a conundrum – which firm is the best of the lot?
In our experience, firms with years of experience and a commanding online presence are usually best. Now, we don’t mean to disrespect smaller operators. However, even if they are trustworthy, they lack the scale needed to offer competitive rates and top-notch customer service.
Firms like OFX, World First, and Moneycorp offer low/no fees, super-thin margins, and a comprehensive slate of services. They offer reach that is truly global, with offices around the world and dozens of currencies on offer.
Best of all, they have dedicated dealers on staff that can offer on-point advice. In today’s economy, their insight could save you from making a ghastly mistake.
In 2020, You Need a Steady Hand on the Wheel
2020 has thrown everything at us – the kitchen sink included – and it’s only half over. If you aren’t working with an experienced corporate FX desk, it’s time you gave one a call. We’re confident the time you invest now will pay huge dividends in the months and years to come.