Article Image 26098

The five main factors that shift a currency's value

The value of currencies is usually far from stable, often shifting by pretty significant amounts from day to day. There are plenty of factors that influence these movements, and getting to know a little more about them can help you make informed decisions about your international money transfers. That's why we've put together this run-through of the five main reasons your euros, dollars and pounds are worth more – or less – one day than they were the day before.

1. Inflation

Increasing domestic prices indicates a nation's currency is getting weaker relative to other countries, shifting its exchange value downwards. A handy reference point is that if the price of a loaf of bread or pint of milk is rising in that country, the value of its currency is probably falling.

2. Interest rates

Low inflation and a strong currency typically go hand in hand with higher interest rates. High rates drive currency value up because they promise good returns to investors and lenders, encouraging people to buy up the currency, increasing its value. It's worth taking a look at the interest rate set by the central bank, which determines all the others, including ordinary people’s mortgage rates. If this ‘base rate’ is high, the currency will also probably be shifting upwards in value.

4. Political stability 

This is one of the easiest currency indicators to spot. Investors like to know their money’s safe, so the more stable the country, the more investment it’s likely to see, contributing to a higher currency value.

4. Current account strength

If a country is spending more on imports than it’s getting in from exports, it will have what’s called a ‘current account deficit’. It’s a lot like going overdrawn on your own current account, and unless the country has substantial reserves, means it will need to borrow from other countries. This generally reduces its currency’s value.

5. Debt levels

Last on the list is the amount of public debt a country has. Lots of public debt leads to inflation, especially if more currency is being put into circulation to cover the debt. Really high debt of over 60% of GDP will also be a big turn off for foreign investment, further decreasing the value of the currency.

Comparison tool

Sending Currency
Buying Currency
Send USD Receive

Felicity Liebmann

Used your service last week to get travel money from ICE and it all worked beautifully. Very efficient and easy, the cash arrived when it was due so there was no hanging about waiting or anxiety about it not arriving when promised.

Jane Hemming, Reading, UK

When buying a villa in Spain, The Money Cloud saved us over £5,000 in comparison to the quote from our bank.
International payments - overseas money transfers

INTERNATIONAL MONEY TRANSFERS FOR BUSINESSES

As a business, making global payments involves many risks, including exchange rate risk. If you are making regular transfers the cumulative costs due volatile exchange rates can be excessive. We can empower you to make International Payments cheaper and easier for your business.

Purchasing overseas property - satisfying your currency needs for payment

EMIGRATING - TRANSFERRING YOUR ASSETS OVERSEAS

Moving overseas can be daunting, with many unexpected aspects to your move you might not have considered. We cover all the financial basics of moving abroad, from the expenses to consider to the most cost-efficient ways to transfer your bank accounts and financial assets to your new home.

Market Insights

Sign up for our newsletter.

Thank You for subscribing to our Newsletter

You have successfully signed up to our Newsletter