Exchange Rates: How are they set?

Exchange rates ebb and flow. How do they do that, and why?


Fact checked

Exchange rates are the rate at which one currency will be traded for another, and can also be viewed as the value of a currency in relation to another. The mid-market rate is determined on the foreign exchange market, which is open to buyers and sellers 24 hours a day.

The mid-market rate

Traders on the world’s currency markets buy and sell currencies at different rates. In turn, these offers are how the mid-market rate is defined. It is simply the midpoint between the demand and supply for a currency, meaning it changes all the time. This is the best rate you could possibly get, and is what you would get if a company was really charging you 0 fees and 0% commission.

Historical Rate chart of GBP and EUR

Updated: 22 Oct 2020 23:22:37 UTC

The above graph shows the fluctuations for the GBP/EUR exchange rate, set by the rates buyers and sellers are offering on the market.

What factors influence exchange rates?

How much demand there is for a certain currency will determine a currency’s value in relation to another. For example, after the UK voted to leave the EU, the value of the Pound fell drastically fell. By January 2017, the Pound had fallen around 20% against the US Dollar. Other factors, such as interest rate decisions, changes in unemployment rates, inflation reports, GDP numbers and manufacturing statistics can all have an influence on the value of a currency, and therefore its exchange rate.

Quotes by banks and specialist companies

Banks and ForEx companies will often quote a different rate than the mid market rate, as a form of commission to make a profit on a currency transfer. They may not tell you about this, but it’s important to know if you’re being secretly charged or not.
To illustrate this, we’ve compared the rate that a ‘big four’ bank will offer you – Barclays – against the mid-market rate.

Amount sent (GBP)Amount received (EUR)
Mid-Market RateMid-market rate£10,000€10,863
Global ReachGlobal Reach£10,000€10,803

At these rates, Barclays are taking a commission of 2.87% (calculated 01/09/2017), plus their fees (at least £5). Compare this to a specialist money transfer company, and you could be getting a much better deal. As you can see, Global Reach are offering €10,803, a much better deal.

Compare all money transfer providers

Table: sorted by a combination of service offering and the amount your recipient will receive

Min. Transfer Amount Transfer Speed Online Transfer Fee Rate Amount Received Description CTA Details
GBP 2,000 1 day GBP 0.00 1.095 EUR
Get bank-beating exchange rates and no fees when you transfer with TorFX. Go to site Show details
GBP 5,000 Same day GBP 0.00 1.095 EUR
Universal Partners FX offers competitive exchange rates and same-day transfers for 100+ currencies. Go to site Show details
GBP 2,000 1 day GBP 0.00 1.095 EUR
Make transferring money abroad as simple and safe as possible with bank-beating exchange rates - online, via the app or over the phone. Go to site Show details
GBP 5,000 1 day GBP 0.00 1.1 EUR
Take advantage of fee lock-ins and live bookable rates, helping you save up to 85% in hidden bank fees. Go to site Show details
GBP 2,500 Same day GBP 0.00 1.095 EUR
Central FX’s dedicated private client team will guide you through the money transfer process from first call to final payment. Go to site Show details
GBP 1 Same day GBP 0.00 1.101 EUR
Whatever amount you transfer, XE will not charge you a fee for using their service. Go to site Show details
GBP 3,000 1 day GBP 0.00 1.095 EUR
Get no fees as a Finder customer when you transfer your money overseas with Global Reach. Go to site Show details
GBP 1 1 - 2 days GBP 1.99 1.092 EUR
Special offers like free transfers and better exchange rates available for new customers.
Quick, affordable transfers around the world with both express and economy options.
Go to site Show details
GBP 5 2 days EUR 3.00 1.101 EUR
Special offer: Zero fees on your first 10 transfers.
Get bank-beating exchange rates and fast transfer times on 15+ popular currencies.
Go to site Show details
GBP 10 Within an hour GBP 2.00 1.101 EUR
First two transfers free for new customers.
Instant or 1 hour transfers to over 50 countries, send money directly to bank accounts or over 280,000 cash pickup points.
Go to site Show details
GBP 50 Same day GBP 2.99 1.095 EUR
Use promo code 3FREE to send your first 3 transfers with no fee. Conditions apply.
An online money transfer service with cash pick-up, bank account to bank account and airtime transfers available.
Go to site Show details

Compare up to 4 providers

Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.

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