An exchange rate is the value of one currency exchanged for another. Using our live exchange rates from GBP to all global currencies, you can calculate how much your money would be worth and use historical data from the last 10 years to forecast trends. Find out if you’re getting the best deal and pick the best time to transfer with the strongest exchange rates.
How are exchange rates calculated?
Exchange rates, also known as foreign exchange rates, are calculated based on the currency values of the two currencies being exchanged. Let’s look at the Pound and the US dollar currency pair exchange rate as of 6 January 2023:
- If 1 GBP = 1.19 USD, you can buy 1.19 US dollars for every 1 Pound
- If 1 USD = 0.84 GBP, you can buy 0.84 Pounds for every 1 US dollar
In this example, you would be able to buy $199 with £100. However, keep in mind that exchange rates change frequently. Plus, because banks and money transfer providers need to make money, they often offer weaker rates compared to the rate seen on the news.
This is due to the fact that the exchange rate you see on the evening news is the ‘interbank rate’, or the mid-market rate. This is a rate used between banks when they buy and sell currency among themselves. The rate you receive will have a margin built into it, or other fees, which makes it less competitive than the mid-market rate. Therefore it’s best to compare rates thoroughly before carrying out an exchange to get the best exchange rate.
Staying on top of trends can save you money when it comes to foreign currency exchange. Today £1 is worth…
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Why do exchange rates matter?
Exchange rates change frequently. There is no guarantee that a rate you see today will be there tomorrow, or even in the next hour. Fluctuating exchange rates can affect a range of stakeholders:
- Travellers. When you travel overseas, you may have less or more money to spend depending on the strengths or weaknesses of the currencies you’re trading.
- Locals. If your country has a strong foreign currency, you may see some imported items become cheaper while other items become more expensive.
- Importers. If you import goods into your country, you may pay more or less — depending on how the rates have fluctuated — for the same goods.
- Exporters. If you sell goods to other countries, you may pay more or less for the same goods.
- Investors. Many trade in foreign currencies, so a drop in the value of a currency they’re trading will mean losses, while a gain will see profits.
Knowing the value of your currency in relation to foreign currencies will help you understand your purchasing power or analyse your investments.
For example, if you are planning on traveling, knowing the exchange rate shows you your purchasing power so you know in advance what you can purchase with a certain amount of money. Or if you regularly send money overseas – for example, to your family – you’ll want to know what the exchange rate is so you know how much money is actually reaching your destination.
What influences exchange rates?
Exchange rates are important factors of a country’s economic performance. This is because countries depend on foreign trade with other countries across the world to sustain their economy.
Aside from demand and supply being major factors of exchange rates, there are a number of underlying factors which also have an impact:
- Interest rates. Interest rates set by the country’s central bank will affect the currency value of that country. If the bank has set higher interest rates, then lenders will see higher returns – which tends to attract foreign investors.
- Terms of trade. The terms of trade of a country are determined by the balance between exports and imports. If a country’s exports are in high demand, then that country will receive more revenue from its exports. This in turn leads to its currency being in high demand and therefore increasing in value.
- Inflation. A country with lower rates of inflation will have a higher currency value because its purchasing power increases in comparison with other countries.
- Political climate. Investors typically look for countries with a stable political climate so their capital is safely invested. Generally, countries with a stable political environment will have a strong economic performance and will attract more investors.
- Public debt. A country with high public debt is likely to look to measures such as printing money in order to reduce the debt. When this happens, the currency value of that particular country will be reduced and this will lower its exchange rate.
Exchange rates from GBP to other currencies
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