What you need to know about currency exchange as a traveller

There’s no doubt that Covid-19 has decimated international travel during the first half of 2020, while the global tourism market remains strangely convoluted despite numerous borders having been reopened throughout the world.

Most recently, travel between Britain and Spain has been compromised after the UK government decided to impose a 14-day quarantine on everyone arriving from Spain with immediate effect.
Despite this, the international travel market is beginning to open up and create new opportunities for those who want to venture overseas. So, here’s a breakdown of what you need to know about currency exchange as a traveller.

What’s an Exchange Rate?

Let’s start with the basics; as the term ‘exchange rate’ refers to the relative real-time value between two international currencies.

In simple terms, exchange rates dictate the amount of one currency that you can exchange for another, and this constantly fluctuates during each 24-hour period.

This is something that forex traders are well-versed in; with the value of specific currencies and pairings impacted by an array of geopolitical and socio-economic factors. Government policies also impact significantly on the value of a particular currency, as we’ve observed recently following the roll out of various quantitative easing measures across the globe.

Understanding these factors and their precise impact is critical as a traveller, as it enables you to make informed decisions when exchanging currencies and time your transactions to perfection.

The Factors That Impact Exchange Rates and the Options for Travellers

In terms of the precise factors that impact on currency values and exchange rates, one of the most telling is a country’s base interest rate (which is typically controlled by a central banking institution).

Low interest rates are typically synonymous with a weak currency, as capping the base rate (which several nations have opted to do in the wake of the coronavirus outbreak as a way of stimulating their economies) encourages less investment from overseas and reduces the flow of capital into the country.

Conversely, high interest rates tend to boost the value of national currencies, and these changes will be reflected by the exchange rates presented to travellers.

On a fundamental level, exchange rates also vary according to the decisions taken by governments and electorates, with the 2016 Brexit vote offering a relevant case in point. Here, the decision to leave the EU sent the GBP crashing to its lowest rate in 31 years, and it has continued to trade in a narrow range thanks to ongoing uncertainty.

While you can occasionally time your trades according to such factors in order to get the best deal, the way in which you buy currency is also important.

A growing number of people now buy travel currency online, for example, as this makes it easier to compare offers and achieve the best possible value.

Not only this, but the very best exchange rates online also tend to be better than high street alternatives, so shopping here can make a significant difference.

Another cost-effective option is to use a prepaid travel card, especially if you’re a disciplined traveller with a limited budget. These entities work in exactly the same way as credit cards, while they negate the need to draw money from your bank account and pay inflated ATM charges as a result.