Sterling is at its lowest level against the euro since the inception of the single European currency and has shed over 50 cents against the dollar since August. There’s talk of tax cuts in the UK to aid the economy but how will the government fund this? Pressure on sterling is here to stay.

When the credit crisis kicked off last summer, the finger of blame pointed squarely across the pond, with sub-prime lending cited as the catalyst. The UK doesn’t escape that easily however and the dramatic fall in sterling underpins the fragility of the UK economy, and its overdependence on the housing market and financial services sector.

A strong dollar has always been a mantra of US policy makers but dollar strength comes with its own issues. The fly in the ointment is that US exports become more expensive for the rest of the world at a time when the world’s largest economy needs to retain that all-important demand from overseas.

The global economy will suffer its greatest shock since the 1930s and unfortunately the effects felt in the UK will be particularly severe. The price of oil has declined by 60 per cent since the highs seen this summer; the interest rate has been reduced to its lowest level in 50 years and will go lower still. Why has the reduction in oil price and interest rate benefit not been passed on to customers? Some of that’s to do with sterling weakness and the continuing liquidity crisis, but profit maximisation and greed are also playing a part.

One of the proposed solutions to the problem is a return to a fixed exchange rate regime last seen under the Bretton Woods agreement in 1944. While unlikely to materialise, it’s food for thought nonetheless.

The immediate solution for British businesses may not be apparent but it is clear that businesses need to take stock of currency fluctuations and the impact they can have on the bottom line. Managing currency risk should be part of daily commercial life for any company with a foreign exchange exposure, whether direct or through demand for exported goods. In the current environment where companies’ exchange rate policies are being stress tested, it’s crucial to remain disciplined and stick to your objectives.

For more information, contact Piers Cracknell, commercial director of currency specialist Moneycorp, on 020 7823 7400 or email enquiries@moneycorp.com