Remittances weakened by a struggling US dollar

Posted: 12 January 2021 9:15 am
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Understanding your money sending options can help you send the most money abroad while the dollar struggles.

The US dollar has struggled against many of its major currency pairs since the beginning of the pandemic last April. No matter the exact cause of this, the outcome is the same: The dollar now buys about 7% less foreign currency when sending money abroad than it did last January, according to the US dollar index. For those with loved ones abroad who need support, sending money often can’t wait — but by taking advantage of hedging options, you may be able to send more to loved ones down the line.

Send now or send later?

Trying to figure out the best time to send your money to loved ones overseas is often pressured by the fact that they need support now, not later. However, many money transfer companies allow you to take advantage of hedging options, which are ways to save money if the dollar continues to weaken. There are two things you should keep in mind when sending money during turbulent times:

  • How the exchange rate will impact how much money is delivered to your loved ones
  • How much money you can send without putting yourself in jeopardy

There are tools to help you shrink the risks of sending money during turbulent times. Keep in mind that not all money transfer methods allow you to take advantage of them. When you have the time to plan ahead, these tools can save you money, but if you’re forced to use them in a pinch, they are still worth keeping in mind.

Transfer tools to help you hedge your money

We cover these tools in greater detail in our hedging options guide. Consider reading up on them to fully use them to your advantage.

Contract options

Contract options can be used in two ways: spot contracts and forward contracts. In short, a spot contract lets you send money using the current exchange rate while a forward contract lets you lock in the current exchange rate for future transfers.

How to use this information
Use contract options to lock in today’s exchange rate if you think the dollar will weaken.

Order options

Order options are a bit more complex and require you to make more predictions on how well the dollar will perform against the currency you’re sending money to. Two types of order options are limit orders, which let you send money only when a specific exchange rate is met, and stop-loss orders, which will stop you from sending money if the rate is too weak.

How to use this information
Look at the exchange rate history of the currency pair you’re sending, for example USD to EUR, and decide if you think it will go up or down, then create an order accordingly.

Will the dollar recover?

Many factors will play into the recovery of the US dollar on a global scale. “The [US dollar] index regained buying interest after bottoming out in the 89.20 area in the first trading week of the new year. The recovery in US yields lend support to the greenback as investors continue to perceive a potential pick-up in inflation pressure in response to the most likely increment in fiscal stimulus under the Biden Administration,” according to FXStreet.

Whether or not the dollar recovers in the long term probably won’t have much impact on your decision to send money today. Instead, consider the hedging tools we discussed as a way to secure the strongest rates to send money to loved ones.

Photo: Getty Images

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