Hi, for context, I’ll be in the UK in a couple of months and I need to order some GBP before I leave. The exchange rate right now is 1.2787 GBP/USD but I don’t understand what that means exactly. Does that mean the GBP is worth more? This rate seems higher than normal, is this a good time to exchange? Or do I have it opposite and I should wait?
In: Economics
Exchange rates are generally based on market data.
If the exchange rate “right now” is 1.2787 GBP/USD that means, on average, traders are buying British Pounds for $1.2787 each.
i.e. if you have 1 GBP and want to sell it in USD, someone might buy it from you for $1.2787.
In practice, sellers available to you as a consumer are likely to charge a fee, so they will probably buy it from you for a lower price, maybe $1.25.
You can work out the exchange rate the other way by doing “one divided by” that number. 1/1.2787 = 0.7820.
That means that if you have 1 USD and want to sell it in GBP, someone might buy your dollar for £0.7820. But again, in practice they will probably pay a bit less, maybe as low as £0.76.
If you are only buying a small amount of GBP I wouldn’t worry too much about the changes in the exchange rate. The rate does seem to be going in the favour of GBP at the moment (so you are getting fewer £s for your $), but that may be because the UK had a big financial event this week (a budget statement). So maybe you would be better buying sooner than later. On the other hand, this might just be a spike due to the budget yesterday, so maybe it will drop down next week and you are better buying later?
There are people who make their money from currency trading; buying when the exchange rate is favourable one way, then selling when it shifts the other way. Unless you have large amounts involved and are willing to do a lot of work, you’ll probably not get much out of this.
For context, in the last month the exchange rate [according to Xe](https://www.xe.com/currencycharts/?from=GBP&to=USD&view=1M) has been between 1.25401 and 1.27963. So that’s a difference of about 2.5 cents per pound. But both those numbers are within the range currency traders will offer anyway; you are probably going to get a better deal by shopping around between traders rather than trying to game the market to buy at the best time.
But don’t take financial advice from strangers on the Internet.
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