What Influences Exchange Rates

What Influences Exchange Rates

Trying to predict future exchange rates is a little like walking into a casino and playing roulette: the odds are stacked against you.

There are a huge number of factors things that affect the exchange rates. However, the aim of this video is to provide a brief overview of what events could affect the cost of your transfer.

In general, market perception of UK economic strength tends to determine the value of sterling. If the market feels upbeat towards the UK then we would expect the pound to gain. Conversely if sentiment darkens then sterling falls. A good example of this would be during the credit crunch when sterling lost around 30% against a basket of currencies.

So, four main factors move the markets:

  • Economic data
  • Politics
  • Acts of God
  • Terrorism

Fortunately, on a daily basis the first two are the main factors. Each month we are treated to a selection of economic releases, ranging from housing data and retail sales, to inflation and interest rate decisions. Of course, it is impossible to anticipate the results of this data, making it difficult to predict what will happen to exchange rates.

However, one thing is certain. Exchange rates can move like a roller-coaster in a short space of time, so it’s best to obtain specialist guidance from a currency broker.

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