Investing in currencies is not easy, but it is still very popular. The daily turnover in the forex market usually exceeds $6 trillion, making it the largest and most liquid market in the world. A large part of this turnover is generated by financial institutions, but most transactions are concluded for speculative purposes by ordinary investors.
Investing in currencies – why is it worth it and what affects the value of currencies?
Let’s start with the fact that each currency is priced in other currencies and forms so-called currency pairs with them. When you buy one currency, you always sell the other at the same time. This means that investing in currencies is in practice speculating on changes in the exchange rates of currency pairs.
The value of individual currencies and their exchange rates are influenced by:
- supply and demand – if the current demand for a currency is greater than the supply, its value increases, and when supply exceeds demand, the value decreases;
- differences in interest rates – countries with higher interest rates can attract foreign capital, which increases the demand for their currency and contributes to an increase in its exchange rate;
- inflation rates – rising inflation means higher prices of goods and services, which can weaken the currency of a given country, but also result in interest rate increases, which in turn has a positive effect on the value of the currency;
- economic growth – strong, growing economies attract the attention of investors, which translates into an increase in the value of their currency;
- trade balance – exports of goods and services generate demand for the exporter’s currency, so a positive trade balance (the advantage of exports over imports) is conducive to increases in the value of the currency;
- Political and geopolitical factors – government decisions, especially in the field of fiscal policy, referendums, elections or tensions between countries in the region and in the world lead to fluctuations in currency markets.
It follows from the above that investing in currencies allows you to diversify your savings portfolio and can help protect yourself from losing the purchasing value of your country’s currency. Thanks to it, you can also make money on changes in the exchange rates of various currency pairs, but this already requires extensive investment knowledge and understanding of how these relationships work.
Promising currencies for 2024
Regardless of your financial knowledge and investment experience, in the near future pay attention primarily to the most important currencies in the world, i.e. the US dollar, the euro or the Swiss franc.
- The world’s most important currency
The US dollar is the most important reserve and transaction currency that dominates global trade, but also the debt and derivatives markets. The most important assets and commodities are valued in dollars, and part of the permanent reserves of central banks from around the world are stored (according to IMF data, global dollar reserves amount to nearly 60%). Moreover, countries such as El Salvador and Ecuador have given the dollar the status of their official currency. All this makes it considered the most stable and reliable currency in the world.
- European currency
The euro is the second most important currency in the world, accounting for around 20 percent of global trade and global reserves. A total of 20 countries have adopted it, and several dozen more have rigidly linked its exchange rate to their currency. These are sufficient reasons to keep part of your savings in euros.
- Strong franc
The Swiss franc is less important on a global scale than the euro and the dollar, but it is also considered a safe and strong currency. It holds value well against other currencies, especially during periods of market turmoil and geopolitical tensions. Suffice it to say that in the last 20 years, its exchange rate against the American currency has almost doubled.
Just 2 years ago, the euro and dollar exchange rates fluctuated around the level of PLN 5 and were the highest in the history of their quotations. The achievement of these peaks was not particularly surprising, as we were struggling with an extremely tense situation in the region and in the world at the time – the spectre of an energy crisis, the developing war in Ukraine and high inflation.
In the period from February 24 to March 7, 2022, the Polish zloty weakened against the euro by 50 groszy, and against the dollar by 60 groszy. After the subsequent rebound, there was another strong depreciation of our currency, but there is no trace of those events. For many months, the Polish zloty has been stable and has not recorded major fluctuations in value. Suffice it to say that in the last two years, the difference between the lowest and the highest PLN exchange rate did not exceed approx. 25 gr.
To be able to assess whether it is worth buying dollars or euros at the moment, it would be necessary to take into account the signals from technical analysis and fundamental factors, which already requires a lot of financial and investment knowledge. However, a quick glance at the above charts allows you to see that these currencies have been relatively cheap for several months. This means that they can be in a good place to invest part of their savings. As the chart below shows, the Swiss franc behaved quite similarly to the euro and the dollar. It should be noted, however, that unlike them, it has already recorded a significant rebound in recent months, which has clearly distanced it from the lows of May this year.