Posted by Allison on 5 April 2009, 11:04
Currency is something that has a profound impact on all our lives. You only need to go onto Google, Yahoo or any other search engine and look for 'currency stories' to find all kinds of results leading you to current news stories on the economy, the latest changes to world currencies and much more besides.
So what do we think about when we hear the word currency? We think about the money in our pockets, first and foremost, and maybe the different types of currency used in other countries. But that is just scratching the surface of what currency stories are really all about.
If you know anything about stocks, shares or currency trading you'll know that the value of all kinds of currencies changes virtually by the minute. This can have a very real effect on us all – even if we don't always realise it.
But there is another effect that these changes have on us, and it's related to how these events are reported. We've all heard the recent headlines about the 'plunging dollar', the 'weak sterling' and the 'strong Euro that's getting even stronger by the day…', and it's interesting to see how we actually react to these when we hear about them.
Let's take a look at this in more detail to see how it affects us. The relative value of a particular currency is dependent on a huge number of factors. If the economy of a country is not doing very well then the currency tends to suffer as a result. In the UK at the moment house prices are falling and there is widespread talk (as there is in many countries in the developed world) of the possibility of a recession. Not surprisingly this doesn't encourage great confidence in the pound, and so it falls as a result.
But the way these stories are reported can have a pronounced effect on what we do as a result. Think about it for a moment. House prices may indeed be falling and the price of everyday living might be going up, but what effect will these two factors have on your life?
The chances are that because you read about the daily cost of items going up in the various currency stories being paraded around online and on television, you will hold back from spending money on anything that isn't entirely necessary. This results in lower profits for businesses (because everyone is reacting in pretty much the same way to each other) and the economy suffers – resulting in that fall in the national currency that we mentioned previously.
The worst kind of currency stories are those that are reported by people using shock tactics. These can unnecessarily cause people to start worrying about something that may not even happen. Worse still, if someone releases a news story that misinterprets events in the currency markets (or more likely enhances them slightly for the sake of adding extra drama) it could really affect the way people view their own currency and the stability of the economy.
But for all the doom and gloom which currently seems to be circulating around the currency markets, there is a good side to the fact that we in Britain are contending with a weak pound. Our exports are in particularly good shape at the moment – although this doesn't seem to be reported quite as often or as loudly as the bad news.
So where exactly do you get the best currency stories, and which ones should you really listen to?
Your best bet is to go to a trusted source that is renowned for giving the right information without blowing it out of all proportion. This is especially relevant if you have a business which imports or exports goods and you want to make sure you protect your interests as much as you can. In the UK we have the Financial Times, which is also available online and which has a reputation for telling it like it is – giving out the facts about a currency related situation without dramatising it for the sake of selling papers.
Of course if you trade in currencies yourself in the hope of making a significant profit then keeping up with the latest currency stories will be an essential part of your daily life. In this case you would be better placed to sort the wheat from the chaff when it comes to facts and speculation, since you will have a far better and more in depth knowledge of the world of currency to start with. It's the majority of the population who rely on the television, internet and newspapers to get their information who might be led astray by currency stories which don't make it clear that they are merely speculating rather than telling it like it is.
But there is another aspect of currency stories which can give us a much better (and perhaps more accurate) picture of what is going on in the world of currency today. This concerns those smaller stories which never get relayed to us by the major news companies and papers. More tightly focused currency stories might not have the same scope and reach as the major ones, but they do give us a unique picture of what is going on in the world, and as such can sometimes be more reliable than the major stories that everyone jumps on.
Take the following example for instance. Everyone knows by now that the dollar is probably at the weakest point it has been for years. But how does this really affect people? By taking the focus off the country and putting it back onto the individuals, we get some far more interesting currency stories to read about.
A recent story told of the problems that American tourists were being faced with when on holiday in Europe. We're all familiar with the concept of changing up some of our own money for the currency of the country we are in while on holiday, but Americans in Amsterdam recently found they couldn't do it. Larger exchanges would still oblige, but the smaller ones think it is too risky to take in money that might reduce their profits later on. And so the dollar isn't currently welcome, it seems, in certain areas of Amsterdam at least.
It is these kinds of currency stories which can be fascinating to read, and which give us a real insight into how the world markets affect individuals in other parts of the world – even when they are out enjoying an annual holiday. It certainly pays to be savvy when you are reading your currency news and views, since currency stories can often be complex and sometimes difficult to understand if you don't have any kind of background or real interest in them.
If you are new to the world of currency trading, economics and all the other things which tend to hit the headlines with unerring frequency at the moment, it would be best to start with the basics before you get into all the more complex details of why certain currencies are falling against others. Once you get involved and start reading all the currency stories that are flying around, it's hard to stop.