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 opposing
currencies. For example, if the US dollar exchange rate started to rise and fall against the pound, this
would create currency volatility.
What causes currency volatility?
Several factors can influence currency volatility, including:
1. Economic fundamentals
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.
2. Political events
Geopolitical events, such as elections, wars, and natural disasters, can cause
investors to reassess their risk appetite and move their funds to currencies perceived as
safer. This can lead to sudden shifts in exchange rates.
Currency traders, both individual and institutional, often speculate on future
currency movements, which can amplify volatility. Their actions can lead to self-fulfilling
prophecies, where expectations of currency movements themselves influence the actual
to weaken it.
What is the impact of currency volatility?
Foreign currency volatility can have a significant impact on your finances if you get caught on the
wrong side of it. Let’s look at the impacts associated with buying a property in another country.
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!
How to protect yourself against currency volatility
- Negotiating better exchange rates: RegencyFX have access to wholesale exchange rates,
which are typically better than the rates offered by banks. This can save you a significant
amount of money, especially when exchanging large sums of money.
- Saving money transfer fees: RegencyFX do not charge any transfer fees. This is because they
have more efficient systems and relationships with banks around the world.
- Providing hedging strategies: RegencyFX can help you hedge against the risk of exchange
rate fluctuations. This can be done through forward contracts, options contracts, or other
- Offering personalized advice: RegencyFX will provide you with personalized advice on how
to manage your currency risk and save money on your overseas property purchase.
Here are some specific examples of how a foreign currency broker can save you money when
purchasing a property overseas:
- If you are buying a property in Portugal for €500,000, and your local bank is offering an
exchange rate of €1 = $1.10, you would need to pay $550,000. However, if you use a foreign
currency broker, you may be able to get an exchange rate of €1 = $1.12, which would save
- If you are transferring $500,000 from your local bank to an overseas bank, your local bank
may charge you a transfer fee of $250. However, if you use a foreign currency broker, they
may only charge you a transfer fee of $100, saving you $150.
- If you are concerned about the risk of exchange rate fluctuations, RegencyFX can help you
hedge against this risk by setting up a forward contract. This would lock in an exchange rate
for you, so you would know exactly how much you would need to pay in your local currency.
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.
If you have any questions about international payments or would like a free, no obligation quote the
team at Regency FX would love to hear from you.
StartAbroad is here to help
Get a free consultation with international move experts at StartAbroad to discuss your situation and learn what’s right for you. StartAbroad provides a comprehensive suite of services to make your move abroad as easy and painless as possible. StartAbroad’s international moving experts have over 20+ years of experience living abroad and helping others get settled. Get a free consultation at www.startabroad.com to discuss your situation and learn what’s right for you. Ask us about our holistic concierge package, and our medical, visa, and tax solutions!