Why choosing the best time to exchange currency is so important

Like with any financial investment, getting the most for your money through foreign currency exchange relies on one thing more than anything else: timing.

The exchange rate between two different currencies, also known as a currency pair, makes a huge difference to the amount of money you make from a currency exchange. For example, £1 was worth just $1.07 on 28th September 2022. Less than three months later, £1 could be exchanged for $1.24—a $170 difference for every £1,000 exchanged.

This is why finding the best time to exchange currency is so important, and there are a number of factors that impact exchange rates that you need to be aware of if you wish to exchange foreign currencies successfully. There are also a number of services available for personal and business currency exchange that can help ensure you’re getting the most out of your money.

Why do exchange rates change?

The demand for a country’s currency fluctuates over time and is often considered an indicator that the health of that country’s economy is improving, or at least that there is an expectation that it will improve. However, there are also some specific reasons that a country’s currency exchange rates might change.

Interest rates and inflation

Although a degree of inflation is seen as a sign of a healthy economy, if the price of goods and services is rising too quickly – as we have seen in the last couple of years – this becomes an issue, and central banks often increase interest rates in an attempt to bring inflation down. Indeed, this is the approach taken by the Bank of England, which has increased interest rates from just 0.1% in December 2021 to 5% currently.

Although there are negative impacts from higher interest rates for borrowers, they can increase a currency’s value by attracting investment from overseas, resulting in more money coming into the country and therefore increasing demand for that currency.

Trade

Countries that export more than they import – known as a trade surplus – also often have stronger currencies. This is because countries looking to buy those goods and services will pay for them in the currency of the country selling them. For example, a country that buys products from the UK will typically pay for them in pounds, thus increasing demand for GBP.

Market expectations

Decisions taken by governments and central banks can have a significant effect on a currency’s exchange rate, but expectations of market performance will also have an impact. Political stability, prevailing economic conditions, and other economic factors including Gross Domestic Product (GDP) and unemployment rates all play a big part in determining exchange rates.

The best time to exchange currency

So, with all of this in mind, when is the best time to exchange currency? Right before an election? Just after a new international trade deal has been struck?

Keeping a detailed track of geopolitical events and how they will pan out isn’t necessarily straightforward, and predicting how they will be received by the markets is even harder.

Some people prefer to exchange when the market is most active, i.e. when many markets are open simultaneously. This means currency pair volatility is higher, but price ranges are more comprehensive, offering a potential edge when it comes to getting the best price for buying and selling.

Volatility, however, isn’t necessarily going to be your friend, particularly if you’re new to foreign currency exchange. There are foreign currency exchange services that can help manage this volatility, such as limit orders and stop loss orders where you set an automatic point at which your transfers go through, helping to reduce unpredictability for peace of mind.

How Foreign Currency Partners can help

If you’re new to foreign currency exchange or looking to secure a competitive exchange rate for your next high-value purchase, our experienced team here at Foreign Currency Partners is on hand to help.

Whether you need to transfer money quickly with a spot contract or require the certainty of set prices for regular transfers with a forward contract, we offer a number of specialist services and tools for both personal currency transfers and business currency transfers, all tailored to meet your specific needs.

Ready to make your money work harder for you? Open your account today to start taking advantage of our account features including checking live exchange rates, setting rate alerts and full access to our transfer services.