So what is it with these exchange rates!
If you make or receive any international transfers, you’ll be aware of the volatility we have witnessed in the foreign exchange markets this year. Those fluctuations in exchange rate have a direct impact on how much your transfer costs and, perhaps, how much is received the other end. So, why are things so unsettled?
The foreign exchange (‘forex’ to its friends) market is a constantly moving amorphous mass of transactions. The most reliable source for estimating the size of the market is the Bank of International Settlements (BIS), which publishes data every three years.
At the last estimate, it was assessed that the equivalent of $5.3 trillion is traded daily by millions of companies, institutions and individuals through thousands of trading houses. Of this fantastic volume, it is generally accepted that less than 5% is traded for payment of funds or ‘physical delivery’ as it is termed; the vast majority of trades being for speculative or ‘investment’ purposes.
So, the market volatility and exchange rate fluctuations are driven by the sentiment amongst speculators and those seeking to profit from, sometimes minor movements in the exchange rates themselves. That’s an important facto because it obviates the effects of tourism and seasonal trading.
Speculators are a fickle bunch, happy to make money whether a currency is strengthening or weakening and unconcerned about the impact that this will have on anything but the bottom line. Speculators are also cowardly beasts who will scarper as soon as they are made nervous by pretty well anything. That is also important to note.
So, when China’s economy slows, as it did earlier in the year, share traders dump their equities and take their money back home. Hence, the Yuan weakens and the currencies, from which these investors emanate – the US Dollar in particular, strengthen. The slowdown in the Chinese economy also dampened demand for commodities. That weakened the currencies of the countries most involved in exporting raw materials. This has created weakness for the Australian, New Zealand and Canadian Dollar and record levels of weakness in the South African Rand.
In essence, when you are considering a transfer of Sterling into Euros, it would seem obvious to just look at that currency pair and nothing else. However, the impact of the Chinese economy, commodity prices, US central bank decisions and many other factors are all represented in the exchange rate you are looking at and that may be a good or a bad thing.
To find out how you can take advantage of positive fluctuations in the market and exchange your currency at the right time to get the best possible rate, call 020 7350 5474 or visit www.halofinancial.com
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