Should I try and predict currency market movements?
Exchange rates are inherently unpredictable. So, don't try and second guess the markets by relying on potentially inaccurate forecasts.
Currencies are on a constant rollercoaster ride as they strengthen and weaken in response to a raft of political and economic variables – from elections and referendums to interest rates and inflation. Glance at a chart for any currency pair and you’d be forgiven for thinking it’s only the large fluctuations that impact the cost of sending money overseas.
Even small movements can lead to big losses
Don’t underestimate even the smallest of movements. This seemingly innocuous market activity also has the potential to drive up the cost of your international payments, such is their sensitivity to exchange rate fluctuations. If we consider this in the context of a large requirement, such as an overseas property purchase in France, just a 1% drop in the value of the GBP-EUR exchange rate can create a significant dent in your budget.
Don't second-guess the currency markets
It’s easy to assume the best way to mitigate this risk is to stay one step ahead by trying to predict these currency market movements – if only it were that simple. Unfortunately, you don’t have the luxury of a crystal ball – no one does. Without the ability to see into the future, we can’t be sure how the events that influence currency markets will turn out. Therefore, it’s impossible to predict which direction exchange rates will move or by how much with any certainty.
The COVID-19 pandemic underscored just how unpredictable the currency markets, and the factors that influence them, can be. When the COVID-induced recession blindsided society in March 2020, the pound sunk to just over 1.06 per euro – its lowest level since the depth of the 2009 financial crisis.
Three years earlier, the 2017 general election caught the UK currency by surprise. A flurry of opinion polls in April suggested the Conservatives held a significant lead over Labour, inspiring Theresa May to call a snap vote. However, rather than strengthening her majority less than two weeks before Brexit negotiations were due to begin, expectations of a comfortable victory were misplaced, and the nation was left with a hung parliament – bad news for the pound which nosedived in value.
Achieve certainty by working with a currency specialist
Rather than relying on potentially inaccurate currency forecasts – such as those based on unreliable opinion polls – it’s prudent to plan for all eventualities. A currency specialist can help you do just that by working with you to understand your requirements and helping you leverage specialist tools that help you take control of exchange rates – such as a forward contract. This allows you to fix a current rate for a future payment, so you know exactly how much it will cost when the time comes to make it.
So, don’t waste valuable time trying to predict which direction that currency chart will head next. By arming yourself with the tools and guidance you need to mitigate currency risk – not mere speculation – you can rest assured that the cost of your international payments won’t suddenly soar.