Different Country, Different Money
In August we launched our international nomadic journey into the island of Ireland with its two exciting countries. Over our 5-week visit to the island of shamrocks and leprechauns we had a chance to visit Northern Ireland, land of exciting cities like Belfast, as well as incredible natural wonders like the Giants Causeway. We also loved our time in Ireland, home to Dublin, Galway, and Tipperary.
Ever since I can remember I’ve wanted to visit England and Ireland. My grandmother was born near London, and her family moved to New York City when she was a teenager. I regret now that I never learned that much about her childhood in England. So now I have a chance to learn about the countries that are tiny in size compared to the US, but huge in their global influence and personal significance.
I also have a chance to follow my passion project, international currencies in real time. Can I learn something new about the currency used in the countries that I visit? And can I profit from changes in currency values as I travel through the very countries I’m trading on Forex at the same time?
What’s In A Name?
In the US, we don’t give much thought to the nicknames we give our money. A dollar is called a buck and a hundred dollar bill is a Benjamin. In England, they use the Pound Sterling, but a Pound is often called a Quid. And a 5-pound bill might be called a Fiver or a Bluey, because the bill is blue. In the world of currency exchange (aka Forex) many countries use the word dollar, such as the Canadian dollar and the Australian dollar. So it makes sense that they have nicknames too, so you know what country’s currency you’re talking about. The Australian dollar is often called the Aussie, and the Canadian dollar is called the Looney (because of the loon bird on the $1 coin).
Formally, 3-letter abbreviations are used to name each currency just like symbols are used to identify companies trading on the stock market. So here’s a little into to Forex, starting with a list of the most common countries for tradingFforex and their trading symbols:
US Dollar = USD
Canadian Dollar = CAD
European Union (Euro) = EUR
Great Pound Sterling = GBP
Australian Dollar = AUS
Japanese Yen = JPY
The Euro is a currency that is now used in 19 countries. There have been some changes due to Brexit (the exit of Great Britain from the European Union), so for a complete list of countries, click here: https://europa.eu/european-union/index_en. The Pound is used in the United Kingdom (England, Scotland, Wales and Northern Ireland), plus a few British territories around the world.
Driving from Dublin to Belfast
It was important for us to know about the Euro and the Pound Sterling because the first stop in our international journey was Ireland (using the Euro) and Northern Ireland (using the Pound Sterling). I thought there would be a border crossing between Ireland and Northern Ireland, but even after Brexit, we just drove on in, with barely a sign on the highway welcoming us to Northern Ireland. For me, the only striking difference was the money: The Pound Sterling (£) is the currency in Northern Ireland, but coming from Ireland, I had become accustomed to the Euro (€).
As a traveler, my brain was hard at work, calculating the differences in prices to determine exactly what I was paying in US Dollars. In this case it wasn’t too difficult to make the adjustment since the US Dollar is about .85 Euro and about .75 Pounds. So for example, paying £2 for a cup of Earl Gray tea, means it costs about $2.70 in US dollars. I can remember when the Pound Sterling was more than 2 times the US Dollar, so in terms of buying power, things are now more affordable for US travelers.
The Money on Ireland – It’s Complicated
So how did Ireland get so complicated? I’m no expert in Irish history and politics, but I learned that Ireland has a long history of invasions and occupations. There were the Vikings in the 8th century, then the Normans, and The Tudors, just to name a few. It was only in 1937 that the Republic of Ireland gained its independence from the UK, except for Northern Ireland which remains to this day a part of the U.K.
In 1973 Ireland and the United Kingdom (UK) joined the European Union (EU). Since the EU is known for having a stable currency, Ireland has benefited from more economic stability. But Northern Ireland uses the Pound Sterling, because like the rest of the UK, they never adopted the Euro as their official currency. In 2016, when the UK decided to break away from the EU, their currency took a significant hit, declining as much as 20% vs other major currencies, like the Euro and the Dollar.
The chart below shows how the Euro has declined in value by 12% compared to the US Dollar, but the Pound Sterling has declined over 30%! Or, in other words, the US Dollar has gotten stronger against the Euro and the Pound.
Long Term Investment vs. Short Term Trade
Brexit is just one event that caused significant change to the value of the Pound Sterling over a 5-year period. Many traders look for those long-term trends to make investment decisions. However, instead of looking at trends that may stretch over months, years or even decades, I also look for trends that last for hours or days. If you look at the chart below again, you’ll see that even though the overall trend is lower, there are a lot of ups and downs along the way. Those ups and downs are short term trends that traders like me can identify.
The shorter term trends are often caused by daily news events. For example, news about unemployment or inflation can make currency values change rapidly. Another example would be news about trade deals or potential conflicts between countries. Any type of news that can affect a country’s economy can potentially move the value of their currency. As I travel to different countries, I’m reading and listening to their news to get a better perspective of global economic events that can influence currency values.
Currency Trading Example
Let’s look at a real example of how economic news can make currency values change (and profit from it). Recently, some strong economic news was reported for the United Kingdom regarding GDP, Trade Balance, and Construction Output. These are all indicators of economic strength, and in each case the numbers were better than expected. Economic strength often translates into higher currency values, so I anticipated that the Pound Sterling (GBP) would go up relative to the US Dollar, and I was right! As of noon London time, GBP was up .35% vs the US Dollar. One-third of one percent may not seem like a huge number, but for a trader like me, a move like this can be very profitable.
In my next article, I’ll share some of the benefits of trading Forex vs. trading stocks and stock options. I’ll also share some tips on getting started in Forex trading, so you can see how to potentially profit in the Forex market.