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Currency Market News

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US Dollar rates falling as interest rates to rise
28 November 2015

Many of you may well have seen rates for buying Dollars dropping over recent months and be wondering – why is that?

For just over 12 months now the U.S Federal Reserve, which is the central bank in America have been discussing and looking at raising interest rates. When a country raises interest rates this is hugely attractive to foreign investors as quite simply they get a higher return for their investment. In the currency market there is also a large amount of speculation involved, where large investment banks and speculative trading firms speculate/bet on things happening before they actually do so as to make profit from the events when they occur.

As a result, indications of any rise in interest rates encourages people to speculate that a currency will strengthen ahead of the rise and the consequent overseas investment this would attract.

So put very basically a higher interest rate = a stronger currency = lower rates from buying from other currencies.

What does this mean for me?

What this all means is that as the US FED continue to hint at a rate rise, US Dollar money transfer exchange rates will drop. We have already seen this occur in the last month as it has been suggested a rate rise could happen as early as next month (Dec 2015). Indeed in the last month we have seen rates for buying US dollars from Pounds drop from around 1.54 to 1.51. This shift of nearly 1.3% may not seem like a huge amount but in real terms would increase the cost of 100k USD by nearly £1300 GBP.

And should the FED decide that they will increase rates this will likely drop further as huge amounts of money would be pushed into the US economy which would cause rates to drop further.

So albeit perhaps not the best news for those of you buying in the USA -  be prepared in the coming months for GBP>USD rates to drop further, and indeed if rates do rise throughout 2016 for this to continue.

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