The European Central Bank (ECB) showcased an economy recovery plan last week that included slashing deposit rates below zero, to -0.1%. Central banks in the Eurozone will now have to pay to park money on deposit; this is expected to encourage them to lend money out to businesses, in hopes of stimulating the 18-bloc area’s economy.
“The ECB’s latest actions may just pull the Eurozone out of its economic slump, especially if it manages to successfully introduce some sort of quantitative easing,” says Carl Hasty, Director of international money transfer specialist Smart Currency Business.
“The ECB’s approach helps to weaken the euro, increasing its export competitiveness. Given how sterling has been strengthening so far this year, the combined effect would be a drastically weakened euro against sterling.
“If this continues, UK exporters may find themselves having to raise prices in the Eurozone in order to profit in the market. This would decrease UK export competitiveness. As the Eurozone is the UK’s largest export market, this could have a significant cumulative effect on UK exports.
“However, there are still measures that UK exporters can take, given the circumstances. Businesses that want to continue exporting to the Eurozone can lock in a currency exchange strategy in advance in order to save money and minimise the risks caused by fluctuating currency exchange rates.
“There are also many other markets across the world which are ripe for exploration. The Eurozone is currently an easy country to export to from a practical perspective, particularly in terms of trade regulations and lead times. If the euro weakens further, though, UK exporters that export to the Eurozone will need to weigh up the trade-off between these benefits and the advantages of exporting to other countries.”