If you want to change currencies, either because you plan to emigrate or buy a house abroad, you clearly want to get the best exchange rate you can. After all, a good exchange rate can mean a significant improvement in your foreign currency total. It means more euros or US dollars in your bank account for when you’re abroad.
So how do you know when the exchange rate is going to be good? Is there a way you can find the future exchange rate? In this post, I want to examine these questions.
Can you find the future exchange rates?
In a word, no, this is absolutely impossible. This is because the foreign exchange market is a horribly complex beast, composed of countless millions of people influencing the rates at any one time, and impacted on by events around the globe on a constant basis.
There’s no central arbiter of the foreign exchange rates, and no one person can definitely influence them, nor determine how they’re going to change. Given this, speculating about the future exchange rates would be just that: speculation.
Can we develop an idea of how exchange rates might change?
Fortunately, yes. Though the foreign exchange rate is vast, it’s not wholly unpredictable. Over time we can see patterns emerge in how the rates change, depending on what’s happening in the world. For instance, if there’s a flood in the United States, you could state with close to certainty that the US dollar would strengthen as a result.
This is because, in the past, in times of crisis the markets turned to the USD as a safe haven. Hence, though we can’t find the future exchange rates, we can make predictions about what might happen to them, based on what’s happened before.
Do you have a real life example of this?
Yes. Just this afternoon, the euro has climbed more than a cent against the US dollar, as the US creates 163 thousand jobs in July. That’s almost 70 thousand more than forecast. This benefited the euro because, as history tells us, if the US creates a high number of jobs, that boosts global optimism, encouraging currencies other than the US dollar to rise.
However, we cannot use this to find future exchange rates because, of course, before the release of the job creation figures, no one had a clue what they’d be. There as a forecast of 90 thousand jobs, but that turned out to be completely wrong. Hence you could only make a guess: they would be good, and the dollar would lose out, or the would be bad, and the dollar would gain.
So how can I use this information to help me?
My point is that I would advise against trying to find the future exchange rates, nor even trying to predict them. Instead, this information is useful because, the more you know about how the foreign exchange rates work, the more informed you’ll be when you change currencies.
Get in touch
I do hope this post has been of interest.
To find out how this data has affected your foreign exchange transactions, call us on +44 (0) 1494 671800 or email [email protected]. You can also visit us at foreign exchange specialist Pure FX. We’d be delighted to help with your enquiry.