Comparatively upbeat domestic data, general market risk aversion and the prospect of the Federal Reserve introducing higher interest rates before the end of the year helped the US Dollar spend much of 2015 trending up against the majority of its currency counterparts.
The ‘Greenback’ ended the year higher against the Pound, Euro, Australian Dollar and New Zealand Dollar as a nod to policy normalisation from the Federal Open Market Committee (FOMC) in December and hopes that four more positive rate revisions would follow over the course of 2016 gave the currency a boost.
Investors also turned to the safe-haven US Dollar as the fiscal situation in China, the world’s second largest economy, deteriorated further.
Pound Sterling to US Dollar (GBP/USD) – International money transfers worth less in 2015
The Pound Sterling to US Dollar (GBP/USD) exchange rate got stuck on a downtrend from June onward, with the pairing sliding from a high of 1.5879 to a low of 1.3839 by early 2016.
That difference in the exchange rate means that anyone looking to transfer £100,000 now would be over $20,000 worse off than they would have been when the GBP/USD pairing was at its highest point of 2015.
While the Federal Reserve raising borrowing costs for the first time since the onset of the global economic crisis had an impact on GBP/USD demand, the Pound also dropped against the US Dollar as a result of UK interest rate hike expectations being pushed far into the future due to stagnant UK inflation and slow growth in average earnings. Concerns relating to the UK’s in-out EU referendum also reduced Sterling’s appeal and ensured that the US Dollar was able to gain the upper hand.
Safe-haven demand supports Euro to US Dollar (EUR/USD) international money transfers
Although ‘Grexit’ issues and the prospect of the European Central Bank (ECB) employing looser fiscal policy kept the Euro under pressure in 2015, the common currency firmed towards the close of the year as the currency’s safe-haven credentials made it an attractive prospect in the face of significant market turbulence.
Over a twelve month period the EUR/USD currency pair fluctuated between highs of 1.1601 and lows of 1.0495, resulting in a difference of over $11,000 on a €100,000 transfer.
While an expansion of quantitative easing from the ECB at some point this year is likely to weaken the Euro, if market instability remains (and prevents the Fed from raising interest rates) it will limit Euro losses.
Got an International Money Transfer Coming Up? Here are our 3 Predictions for 2016:
1. The UK’s EU Referendum will be decisive for GBP/USD
The recent announcement that the UK’s in-out EU referendum would be held on June 23rd initially boosted demand for the Pound, but with prominent British politicians (like London Mayor Boris Johnson) coming out in unexpected support for the ‘Out’ camp, Sterling was soon pushed into freefall against its rivals, with the GBP/USD exchange rate weakening by the most for almost seven years and dropping over 2% in a single session.
Bets that a break from the EU could see UK GDP plummet means that if the ‘Out’ camp continues gathering support in the build up to the vote we could see ‘Cable’ hit fresh multiyear lows.
2. Further rate hikes from the Federal Reserve could send the US Dollar exchange rate to best levels
At the beginning of the year the US Dollar was still up following the Federal Open Market Committee’s (FOMC) December rate increase. However, as stock markets in China were plunged into chaos with the final verse of Auld Lang Syne still ringing in the air, fears of the impact higher US borrowing costs would have on the domestic and global economy resulted in a swift recalculation of rate hike bets.
While it had initially been speculated that as many as four rate revisions could take place over the course of 2016, the odds of an adjustment taking place before the close of the year fell to as low as 2% as a result of stock/commodity/currency market volatility and mixed US data.
However, some areas of the US economy (like the labour market) continue to perform well and domestic inflation was shown to have accelerated in January. If global conditions stabilise and local data lends justification to the 2015 rate hike, we could see borrowing costs raised in the second quarter of 2016. Such a move is liable to push the US Dollar higher and send higher-risk currencies like the Australian Dollar and New Zealand Dollar lower.
3. US Election set to spark exchange rate volatility
In the second half of the year one of the main forces driving US Dollar exchange rate movement is likely to be the US general election. While Hilary Clinton is currently the frontrunner for the Democrats, Republican loyalties are more split, with both Donald Trump and Ted Cruz generating significant interest.
If one of the election’s more conservative candidates emerges triumphant from the vote on November 8, the US Dollar’s movement may prove to be comparatively limited. However, should a controversial figure, like Trump, take the top job, concerns about the direction US policy is likely to take may send the ‘Greenback’ tumbling before the close of 2016.
Moving money overseas? What do you need to consider?
As the US Dollar exchange rate movements of 2015/2016 demonstrate, the currency market is highly volatile. This can make planning an international money transfer difficult and getting the timing of your transfer wrong could cost you thousands.
If you know that you’ll need to be moving money overseas in 2016, perhaps to fund an emigration or make a foreign property purchase, there are several factors you may wish to consider.
For starters, staying on top of the latest market movements can make planning a foreign currency exchange easier as you’ll know how exchange rates are behaving and whether the market’s moving against you or in your favour. Registering to receive free market updates from a reputable international money transfer provider is a simple means of making sure you have the knowledge you need to make an informed decision.
Secondly, if you know you’ll need to move money abroad in the future but aren’t tied to a specific date, you could talk to a transfer provider about their risk management options. Some providers offer a range of solutions to help you safeguard your transfer from currency risk, including Forward Contracts, Limit Orders and Stop Loss Orders.
With a Forward Contract you can fix a favourable exchange rate for up to two years in advance of a transfer, while Limit and Stop Loss Orders allow you to keep your transfer within a set range.
Finally, getting the most for your money when conducting an international money transfer isn’t just about moving your funds at the right time – using a provider who can secure you a competitive exchange rate is also crucial. Some foreign exchange specialists are able to undercut the exchange rates offered by banks by as much as 90% and work on a fee-free basis, so you’ll enjoy significant savings.
Whatever your reasons for moving money abroad, bear in mind the fact that taking the time to do a little research and consult industry professionals could make a big difference to how much you receive for your transfer.