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11 Jul 2016

7 Signs that Your Currency Exchange Rate is About to Go Up

Can you Protect your Currency against Exchange Rate fluctuations?

Yes! Speak with a currency transfer specialist.

A specialist has insights about the trends of major currencies.  With the benefit of the latest market information, they are an invaluable in helping you make informed decisions about how and when to move your money.

They may suggest a spot trade, if the exchange rate is presently in your favour. This is an immediate transfer from one currency to another using the current exchange rate.

A forward contract means you lock in an exchange rate over the next 12 months. You’ll be safe in the knowledge that when you transfer currency you know what rate you will get and should the rate change against your favour, you’ll benefit by saving money, too.

Not in any hurry? Set up a rate alert. Talk to a dealer about a reasonable rate to target between your selected currencies and they will monitor it for you and contact you when your ideal rate has been reached.

Why Do Exchange Rates Fluctuate?

Exchange rates move up or down because currency is a high risk, volatile market. This fluctuation happens for a number of reasons which can be real or proven to be based on market speculation.

This means that foreign exchange rates change when there is a perception of economic instability-as was seen when the pound sterling plunged to record levels after the Brexit vote. These are the seven factors that determine whether your currency exchange rates rise or fall.

  1. Inflation

When inflation is low in the UK, British goods become cheaper and exports become more competitive, this creates an increase in demand for pounds sterling to buy UK goods.

Also, foreign goods are pricier to British businesses who reduce buying them, have less need for overseas currencies and drive those currencies down in value.

Low inflation can mean the value of currency increases; high inflation could trigger a fall in its value.

  1. Interest Rates

As interest rates rise, more investors will want to deposit money there as they will get a better rate of return- this means a better exchange rate for those holding that currency.

There are substantial gains to be made by international investors moving money between different countries this way, speculating about interest rates or expected fluctuations in exchange rates.

  1. Concern about a currency’s strength and future Economy

As we’ve seen first-hand, the pound sterling fell immediately following the results of the Brexit referendum. The market reacted to the perceived threat to the UK economy favouring less unpredictable currencies such as the US dollar which strengthened.

In the months leading to any negotiations, the pound will be fragile when data shows slowing UK growth, rallying when uncertainty clears.

  1. Recession

During a recession interest rates are often reduced by central banks in an effort to stimulate economic growth by making it cheaper for households and businesses to borrow. In turn, this makes a country less attractive to invest in and with this lack of confidence investors are more likely to move their money overseas. The currency will therefore lose value.

  1. Global Events

Major global sporting events like the Olympics drives the value of a currency up and it isn’t simply because fans spend millions on tickets, accommodation and meals.

Sponsors invest large sums to advertise to a global audience. New business relationships are struck up, increasing international trading.

The media’s showcasing the hosting nation’s attributes result in increased tourism, creating tourism jobs. Employment rises as jobs are generated in preparation and during the event.

  1. Unemployment

Unemployment figures can weaken the value of currency.

High unemployment reduces investor confidence. Banks may cut interest rates and low interest rates trim demand for currency, reducing its value.

The more unemployment, the less cash there is to spend on consumer goods and services. This reduced demand for goods means a weaker currency.

  1. Balance of Payments

This is also known as Trade Balance, calculated by the total value of exports minus the total value of imports.

Ideally exports outweigh imports as more money comes into the country to purchase goods and services. The high demand increases the currency value.

With a deficit, more domestic currency moves to foreign markets than is received. To fund the deficit, foreign markets lend money to maintain the balance. To repay the debt, countries often reduce the value of the currency. Over time, long term deficits contribute to a weakened currency as the economy adjusts to repay the debt.