Why Exchange Rates Could Move in 2025

The next two weeks could be some of the most important for global currency markets in 2025. Central banks in the United Kingdom, the United States, Europe and Australia are all preparing major interest rate decisions. When leading financial institutions adjust interest rates, the effect can ripple through the entire foreign exchange market — impacting everything from business payments and international trade to the amount of money individuals receive in cross-border transfers.

Because the foreign exchange market is the most liquid financial market in the world, any change in expectations from the Bank of England, the US Federal Reserve or the European Central Bank can immediately shift the current exchange rate of major currency pairs like GBP/USD, EUR/USD, USD/JPY or GBP/AUD.

This article explains why exchange rates could move, what could drive volatility, and what individuals and businesses can do to protect themselves from currency risk.

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What Is the Foreign Exchange Market and Why Does It React to Interest Rates?

The foreign exchange market (forex or FX) is where currencies are bought, sold and traded. It operates across major financial centres such as London, New York, Tokyo and Hong Kong, with global trading volume reaching trillions of dollars per day. According to the Bank for International Settlements triennial central bank survey, average daily turnover in the forex market continues to rise, making it the largest and most active market in the world.

Currency prices are influenced by several economic factors, but interest rates set by central banks play one of the biggest roles. When a central bank raises interest rates, its national currency often strengthens. When it cuts rates, the currency may weaken. This happens because higher interest rates typically attract foreign investment, while lower rates can reduce demand.

For example:

• A rate cut in the United States may weaken the US dollar.
• A stable decision from the Bank of England may support the British pound.
• Higher-than-expected rates in Japan may influence the Japanese yen.

If expectations shift suddenly, the forex market can respond in seconds.

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Why Are Currency Markets Priced on Expectations?

Much like the stock market, the forex market moves not just on what central banks do — but on what market participants believe they will do.

Financial institutions, hedge funds, commercial banks, multinational corporations and retail traders all form views based on economic data, inflation levels, employment figures and political conditions. Once expectations form, traders adjust currency positions accordingly.

This means:

• If markets expect a rate cut, the impact may be priced into foreign currency values before the announcement.
• If the actual decision differs from expectations, volatility often increases sharply.
• Even a single comment from a central bank governor can push exchange rates higher or lower.

Unexpected changes tend to cause the largest swings. This is why interest rate announcements can be a risk event for anyone making money transfers or managing international payments.

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How Could Upcoming Interest Rate Decisions Affect Exchange Rates?

Central banks will issue key decisions over the next two weeks. The outcomes could influence currency pairs globally, including GBP/USD, USD/JPY and AUD/USD.

Australia: RBA Interest Rate Decision

A decision from the Reserve Bank of Australia may affect the Australian dollar. Any indication of future tightening or easing can shift AUD performance against major currencies.

United States: Federal Reserve Interest Rate Decision

The Federal Reserve controls the world’s most traded currency — the US dollar. Even a small change in the Fed’s outlook can influence financial markets, commodity prices and forex trading volumes worldwide.

United Kingdom: Bank of England Decision

The Bank of England will decide whether to cut rates, raise them or stay unchanged. Conflicting reports about UK economic performance — including concerns about growth and public finances — make this meeting especially important for the British pound.

Europe: ECB Policy Meeting

Eurozone monetary policy continues to influence currency risk for both businesses and individuals engaged in international trade or cross-border transfers.

With multiple major central banks making announcements almost simultaneously, the global foreign exchange market may see unusually high volatility.

What Are Forward Contracts and How Can They Reduce Currency Risk?

When currency prices fluctuate rapidly, individuals and businesses may want to lock in a specific rate for a future date. This is where a forward contract becomes useful.

A forward contract allows you to:

• fix an exchange rate in advance
• protect against sudden currency swings
• plan international payments more confidently

For example, if a business knows it must pay a supplier overseas in 90 days, it can use a forward contract to secure today’s price of a currency. If markets move unfavourably later, the business avoids losses by using the previously agreed rate.

Forward contracts are commonly used by:

• multinational corporations
• commercial companies
• importers and exporters
• individuals with large international transfers

They effectively shield users from exchange rate changes during periods of uncertainty.

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How Interest Rate Announcements Influence Money Transfers

People sending money abroad — whether personal or business-related — may notice higher or lower foreign exchange rates around central bank announcements.

What can change:

• the amount of money received in the destination currency
• the cost of a money transfer
• the fees charged by some providers
• profit margins for companies making recurring international payments

For example, a sudden drop in GBP/USD or GBP/EUR could reduce how many US dollars or euros someone receives. Conversely, a strengthening British pound may improve the payout.

Comparing exchange rates across providers is essential when markets move quickly. Tools that allow you to compare money transfer rates give users better insight into the total cost of a transfer, including spreads and fees.

Why Exchange Rates Change Throughout the Day

Foreign exchange rates change constantly because the forex market operates 24 hours a day, five days a week. Large financial institutions and market makers adjust prices based on:

• economic reports
• central bank commentary
• political instability
• shifts in supply and demand
• real-time trading volume

Because the spot market is decentralised (an over-the-counter market without one single exchange), prices update every second. This means the market price you see at 9am may differ from the price at 11am.

Where Do the Most Reliable Exchange Rates Come From?

Reliable currency pricing typically comes from:

• central banks
• major commercial banks
• forex brokers connected to Tier-1 liquidity providers
• global payment institutions
• professional market makers

These participants contribute pricing data that reflects the real-time market conditions of the largest and most traded currencies.

How to Convert One Currency to Another Using Live Rates

Converting a currency pair is straightforward:

1. Identify the base currency and quote currency (e.g., GBP/USD).
2. Check the current exchange rate from a reliable source.
3. Multiply the amount of money you want to convert by the rate.
4. Factor in any additional costs such as spreads, fees or markups.

For example:

If GBP/USD = 1.2630, then £1 equals $1.2630 before fees.
A transfer of £1,000 would equal $1,263 before provider costs.

Anyone making international money transfers should always look at the total cost, not just the exchange rate.

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Are Currency Markets More Volatile When Expectations Are Uncertain?

Yes — uncertainty increases volatility. Historically, major global events have caused sharp moves, including:

• the end of the Bretton Woods system
• the Great Depression
• world wars
• political instability in key economies
• major shifts in commodity demand and raw materials prices

When market participants are unsure of a central bank’s direction, speculative trading can increase, causing larger price swings.

This is why the current period — with several major banks announcing decisions within days — can produce rapid movements across multiple currency pairs.

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How Do Businesses and Individuals Manage Foreign Exchange Risk?

Common approaches include:

• forward contracts
• limit orders
• using a forex broker for large transfers
• batching payments to reduce fees
• monitoring international settlements schedules
• comparing multiple providers before sending money

Each method helps reduce exposure to unexpected exchange rate movements.

Why This Matters for Anyone Sending Money Abroad

Whether you are sending money home, paying for property, funding a business or supporting family, volatile exchange rates can significantly change the amount received. Small differences in foreign exchange rates can add up when transferring large amounts of money.

By monitoring market conditions and comparing providers, senders can minimise costs, avoid unnecessary fees and secure better outcomes for international transfers.

Correct as of 09 December 2025

FAQs about Exchange Rate Movements

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