What Effects The Exchange Rates?

The exchange rates are similar to the stock markets with the way they change from day to day and a share a lot of the same factors that instigate the changes. It is important that you are aware of the changes in order to be able to know when the best time is to purchase your currency and you can see the value of a particular currency at any one time by using a currency calculator.

One of the biggest factors that effect the exchange rates are interest rates. Interest rates are set by the Bank of England and affect not only your savings accounts but also the amount you would pay back if you were to take a loan out. The Bank of England assess whether or not the interest rates should be increased once a month and effects the exchange rates because when it rises, people begin to move their financial assets and investments to that country in order to get the highest rate of return. It’s hard to keep up-to-date with these changes but a currency calculator will show you the value of a certain currency against another one. As they do that, the value of the currency rises because of the increased demand for it whilst the supply remains the same. Likewise if the interest rates fall, individuals and companies will move assets away from that country which means selling the currency.

The CPI, or Consumer Price Index, is another indicator which measures the change in value of goods and services. CPI is separate into two sections, the core-CPI and non-core CPI. The former is the most commonly tracked report and does not include food and fuel costs as these fluctuate massively each month. Similarly, the Consumer Confidence Index (CCI) is another report that is released monthly and is a large survey of approximately 5,000 American consumers that is used to assess the direction that economy is going. As consumer spending accounts for around half of the majority of economies, it is a major indication of the health of the economy.

One of the more common things that effect exchange rates is the Gross Domestic Product aka GDP that is released in three separate reports. The first stage is the release the advance numbers followed by the preliminary numbers and then lastly the final numbers with the latter coming out on the final day of each quarter. This is another example of an indicator that is used to view the health of the economy and find out the rate at which it’s growing which would obviously have on a knock effect on the exchange rates.

The final important indicator are the trade balances, a set of statistics with regards to the trade balances with almost every country. This is important because the larger the volume a country exports, the greater the demand for it’s currency. Similarly, the more a country imports from a particular country, the greater the value of that nations currency.