The entire world is ramping up efforts to control the Covid-19 pandemic, and while the toll on people’s lives is tragic and immeasurable, there is also huge economic uncertainty.
Demand for many products and services has slumped as people have been instructed by governments globally to stay indoors. This, in turn, will affect imports and exports of certain goods, and the cash flow of many businesses. Covid-19 is having a profound effect on the markets never seen before, causing currency volatility.
For example, even after the Bank of England cut its interest rates to 0.1% to protect the economy, its lowest rate in history, sterling fell to its lowest level against the US dollar since 1985. Excluding the overnight flash crash in early October 2016, this was the lowest sterling has been for a generation.
Efforts by the government and the Bank of England to steady investors’ nerves were not of much use to the currency. Having asked pubs, restaurants, cafes, and gyms to close, the prime minister announced a £330 billion package of loans and grants to support businesses affected. The Coronavirus Business Interruption Loan Scheme allows small and medium-sized businesses to borrow up to £5m with preferential rates as a 12-month interest-free loan. Large companies can use the Covid Corporate Financing Facility option, provided by the Bank of England.
This joint presentation by PM Boris Johnson and the Chancellor of the Exchequer introduced assistance to businesses that have been hit by a sudden lack of customers, with cash grants promised to retail, leisure and hospitality firms. The PM said he would, “do whatever it takes to support our economy”.
Under normal circumstances, such extreme measures would hurt currency, but these are not normal circumstances. If you are wanting to find out more about how you can help reduce your foreign exchange risk in these turbulent times, please contact Andy.Medler@moneycorp.com