Note: This article was written by Patrick Postill of RegencyFX. StartAbroad is a proud partner of RegencyFX. We may make a commission on transactions completed through the partnership links in this article.
Currency volatility occurs when there are dramatic changes to the exchange rates of opposingÂ
currencies. For example, if the US dollar exchange rate started to rise and fall against the pound, thisÂ
would create currency volatility.
Several factors can influence currency volatility, including:
Economic indicators such as interest rates, national income, and
inflation can significantly impact currency values. Stronger economies and higher interest
rates tend to strengthen a currency, while weaker economies and lower interest rates tend
to weaken it.
Geopolitical events, such as elections, wars, and natural disasters, can causeÂ
investors to reassess their risk appetite and move their funds to currencies perceived asÂ
safer. This can lead to sudden shifts in exchange rates.
Currency traders, both individual and institutional, often speculate on futureÂ
currency movements, which can amplify volatility. Their actions can lead to self-fulfillingÂ
prophecies, where expectations of currency movements themselves influence the actual
movements.
to weaken it.
Foreign currency volatility can have a significant impact on your finances if you get caught on theÂ
wrong side of it. Let’s look at the impacts associated with buying a property in another country.
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If you decided to relocate from the US to Portugal, you may decide to purchase a property. Depending on the property type, there will typically be a payable deposit and a final purchase payment. Alternatively, if your property is purchased off-plan, you will normally need to transfer ever-increasing amounts as the project nears completion. Whichever property you purchase, there will be a period of time between paying the deposit and the final payment. If there are significant economic or geopolitical events during this time, you could find that the costs of your property suddenly start to spiral out of control. Over the past 12 months, the USD/EUR exchange rate has moved from a high of 0.9687 to a low of 0.8895; this is a move of 8.9%. $300,000 converted at0.9687 would achieve €290,610. $300,000 converted at 0.8895 would achieve €266,850. This is a difference of €23,760!
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RegencyFX can help protect you against currency volatility in several ways, including:
Here are some specific examples of how a foreign currency broker can save you money whenÂ
purchasing a property overseas:
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All things considered Regency FX can be very helpful to you when purchasing a foreign property. We will save you time, money and hassle by offering you professional advice, guidance, as well as
assisting you in finding a great exchange rate and making international payments.
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If you have any questions about international payments or would like a free, no obligation quote theÂ
team at Regency FX would love to hear from you.
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