Several different global factors influence the currency exchange rate for every country daily. You probably already know that currency exchange rates fluctuate very quickly. Actual factors that influence exchange rates are very complicated and numerous, but there are a few factors that have an almost immediate and often noticeable impact on currency exchange rates. As many saw in 2016, political events such as Brexit or the election of a new president or prime minister can have an immediate effect on currency exchange rates and stock market values. However, these are just a few of the major factors that influence exchange rates.

Political stability influences exchange rates

The political stability of any country will have a major impact on its exchange rates. For example, any country that has any type of unstable political setting such as an uprising or violent conflict will often have declining exchange rates. The political turmoil results in other countries losing confidence in that country’s currency. Investments in the country may be deemed to be riskier, as unstable environments are usually correlated with poor economic performance. Societies may be more dangerous to do business in, or more dangerous for consumers, which means that overall trade rates would decline.

Debt has a major influence on exchange rates

Debt also has a major influence on exchange rates, as countries with large amounts of debt will generally have weaker exchange rates. Countries that have large amounts of public debt are less attractive to foreign investors. The currency exchange rate of any country with large debts will generally start to decline over time, if the debts are not paid off in a timely manner. Foreign investors would rather choose countries that are showing signs of GDP growth, as this indicates that their economy is healthy for the short-term future. Large debts also result in large inflation rates which in turn lower the value of a currency significantly.

Central banks influence exchange rates

Central banks have a major influence on currency exchange rates, and they are mainly able to influence them through interest rate manipulation. By increasing interest rates, lenders can receive a higher return compared to other countries, and the country can attract more foreign investors. In some cases, this would result in an increase in currency values, but in other cases it can result in a decrease. Central bank influences can be complicated because high interest rates can be mitigated by increased inflation rates. A decrease in interest rates can result in lower amounts of foreign investment. Central banks will often influence interest rates to also affect import and export businesses. This can be seen in countries like China that have been thought to artificially devalue their currency to maintain a higher level of exports and make their exports affordable compared to other countries.

These are just a few of the many complicated factors that influence currency exchange rates. We provide you with daily updated exchange rates for several major currencies throughout the world. Give us a call today for more information about exchange rates or to ask any questions that you may have.

When buying foreign currency, it’s important to make sure you get the most for your money. This means, you’ll want to know and understand what it means for a currency exchange rate to appreciate. When currency appreciates, it means that one currency is stronger than another. For example, when the Euro has appreciated, it is stronger than the U.S. dollar and vice versa. And as the demand grows, it continues to strengthen that particular currency.

Before buying currency and when doing your research, it’s important to know what causes a currency exchange rate to appreciate. Some of those reasons can include increases in competitiveness, interest rates, and higher economic growth. Other things to consider are inflation, speculation and expectation, as well as surplus funds and the impact of bought domestic currency.

Supply and Demand

An increase in demand can cause interest rates to rise causing people to hold on to their money which can cause appreciation. As investors speculate and if they think a currency will appreciate, their speculation can cause interest rates to rise. One of the more important reasons currency might appreciate is because of higher economic growth. As the country sees economic growth and interest rates rise, it can make the currency stronger; which can lead to an increase in spending and exports.

Impact of Appreciation

If an exchange rate increases in value, it depends on a number of factors including economic growth, competitiveness when importing and exporting, and the rate of inflation. As an economy becomes more competitive, then a currency appreciation is a good thing. But, if the competitiveness is based on speculating about a weaker economy, then a strong currency can fall short.

Effects of Economy and Government on Appreciation

Similarly, if an economy is in recession, then appreciation causes the currency to weaken and if the economy is booming, appreciation can reduce help reduce inflation leading to higher employment rates and therefore, more spending, increasing the strength of the foreign currency.

Though investors and economies set the tone for currency exchange appreciation rates, sometimes appreciation can be impacted by governments themselves through balance of payments, government debt, or government intervention. Countries who have difficulty getting enough capital may find that their currency doesn’t appreciate. But, if the value of imports is greater than the exports, then it can contribute to higher economic growth. Knowing what causes a currency exchange rate to appreciate is something to consider when deciding the best time to buy foreign currency.

At Xchange of America, rates and policies are clearly stated, so you’re never surprised by hidden fees or additional expenses. A convenient conversion calculator lets you see the rate of conversion of the currency you plan to buy. You can buy your currency with a cashier’s check, money order, bank draft, bank wire, or even a credit or debit card. There are no transaction fees, the shipping fees are clearly stated, and the ease of use makes Xchange of America the place to buy foreign currency when you plan your next trip overseas.