It’s an important question… “Why do exchange rates change?” If you’ve ever sent money overseas, you know how frustrating it can be when exchange rates suddenly move against you. So… why do exchange rates change? Even a very small shift in the currency markets can make a big difference, especially with larger transfers. But why exchange rates change isn’t always obvious and many people do not understand how these movements can have such a big impact. Understanding what influences exchange rates is key to getting the best deal when moving your money internationally. In this post, we’ll break down some of main reasons that exchange rates fluctuate, and show you how to make smarter, better-timed transfers so you keep more of your money.
Why Do Exchange Rates Rise and Fall?
Exchange rates fluctuate constantly. They’re influenced by a wide range of economic and political factors, including:
1. Interest Rates
Countries with higher interest rates often attract more foreign capital, which strengthens their currency. For example, if the UK raises interest rates while the Eurozone keeps them flat, the British pound may rise against the euro.
2. Inflation
Lower inflation generally supports a stronger currency. Investors prefer stable economies, and high inflation erodes purchasing power.
3. Economic Performance
GDP growth, employment figures, and trade balances all affect investor confidence. Stronger economies tend to have stronger currencies.
4. Political Stability and Global Events
Political unrest or big announcements, elections, sanctions, and even global events (like pandemics or wars) can cause rapid shifts in currency value due to uncertainty or investor sentiment.
5. Market Speculation
Traders and institutions also drive exchange rates through speculation. Even rumours or expectations of change can cause volatility.
Why This Matters…
Let’s say you’re sending £5,000 to Europe. If the GBP/EUR exchange rate moves from 1.17 to 1.15, you’d receive €100 less — just from a 2-point swing. That’s why timing matters — and why using a provider that offers real-time rates and transparent pricing is crucial.
How to Get the Best Exchange Rate
Here are a few practical tips to avoid overpaying:
1. Avoid Banks When Possible
Banks often build hidden margins into their rates — and may also charge hefty transfer fees. Always compare the “mid-market rate” (the true rate between currencies) to what you’re being offered.
2. Use a Specialist Foreign Exchange Provider
Companies like ours offer real-time FX rates, lower fees, and dedicated support — so you know exactly what you’re getting, and when.
3. Sign Up for Rate Alerts
Watching the markets daily isn’t realistic for most people. That’s why Tasman FX offer free rate alerts — you choose a target rate, and we notify you when it hits. No guesswork, no stress.
4. Lock in a Rate (Forward Contract)
Need to send money in the future but worried the rate will drop? A forward contract lets you lock today’s rate for a transfer weeks or months ahead.
Stay Ahead of Currency Volatility
Exchange rates can be unpredictable, but your transfers don’t have to be. With the right tools, information, and support, you can make confident, cost-effective decisions — and keep more of your money where it belongs.
Want to check today’s rate or set a rate alert? Contact us or open a free account to get started.
