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Do Exchange Rates Change Daily?

Image credit: Nimalan Tharmalingam

by Peter Lavelle

No, exchange rates do not change daily, in the sense that the exchange rate does not change just once a day. For example, the pound will not change value just once versus the euro or US dollar, from Monday to Tuesday.

Instead, exchange rates change much more frequently. In fact, they change every second. So for example, the pound to euro exchange rate strengthens or weakens countless times during the course of 24 hours.

This is because the foreign exchange market is constantly “live”, meaning that it never closes, even at night, so the exchange rate is always changing.

The exchange rate changes because it reflects a country’s economic performance

The reason why the exchange rate changes constantly is because the rate reflects the market’s assessment of each country’s economy. For example, the pound to euro exchange rate is what it is, based on the UK’s economic and political strength compared to the Eurozone’s.

So, let’s say that one day sterling stands at 1.10 versus the common currency, then the next hour rises to 1.15. The pound’s rise will reflect either good economic news from Britain, or bad economics news from Europe.

Hence, the exchange rate constantly changes, as investors’ reassess each country’s outlook.

The exchange rate changes quickly because the global economy moves fast

What’s more, the exchange rate changes constantly, because the global economy changes constantly.

For example, on Monday morning at 10.30 we might learn that UK GDP rose by +0.6% between October and December, then on Tuesday night at 03.30 we may find out that Donald Trump has declared war with China, then on Tuesday afternoon at 14.30 we could read that Marine La Pen has won France’s Presidential election.

In other words, the exchange rate changes constantly, because the world economy is moving incredibly quickly, and each currency’s value changes as events emerge.

The exchange rate changes less during weekends and holidays

That said though, even though the foreign exchange market is always “open”, there are times when the exchange rates change less. This is because the market is ultimately composed of human beings, who have lives like everyone else.

So for example, the exchange rates change considerably less during the weekend, or over holidays like Christmas and New Year’s.

So with all this in mind, the exchange rate doesn’t change daily, but rather every second of every day. This is because the exchange rate is a reflection of each country’s economy, which is always changing too!

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