Why do exchange rates fluctuate? A guide for expats in France

3 minutes read

The GBP/EUR rate can change significantly from one day to the next. Understanding why can help you make smarter decisions about when and how to transfer money.

If you transfer money between the UK and France regularly, you've probably noticed that the exchange rate is never quite the same twice. Some days the pound is strong against the euro; other days it weakens noticeably. These movements can have a real impact on your finances - particularly if you're transferring larger sums for a property purchase, pension payments, or ongoing living costs.

So what's actually driving these changes? At its most fundamental level, it comes down to supply and demand. But the forces that influence that supply and demand are numerous and interconnected. Here's a plain-English guide to the key factors at play.

Monetary policy

One of the most significant influences on a currency's value is the monetary policy set by its central bank. In the UK's case, the Bank of England, and for the eurozone, the European Central Bank.

Central banks can affect the demand for a currency by adjusting the money supply (how much currency is in circulation) and by raising or lowering interest rates.
When interest rates are low, borrowing becomes cheaper. People and businesses take on more debt, spend more freely, and the economy tends to grow. However, if there's too much money circulating without a corresponding increase in goods and services, inflation can start to rise.

Conversely, when central banks raise interest rates, borrowing becomes more expensive. This tends to slow spending and encourage saving. Higher rates can also attract foreign investment - investors move capital to countries where their money will earn more - which increases demand for that country's currency and causes it to appreciate.

For expats watching the GBP/EUR rate, Bank of England and ECB policy announcements are well worth keeping an eye on. A surprise interest rate decision can move exchange rates quickly and significantly.

Inflation

Closely linked to monetary policy is inflation - the rate at which the prices of goods and services are rising in a given country.

A moderate level of inflation is generally considered healthy for an economy. But when inflation rises too high, it can erode the purchasing power of a currency. If prices in the UK are rising faster than those in the eurozone (or vice versa), it affects the relative value of pounds and euros.

When inflation gets out of control, central banks typically respond by raising interest rates - which, as explained above, can then cause the currency to appreciate. This balancing act between inflation and interest rates is one of the key dynamics that drives exchange rate movements.

Political and economic conditions

Markets are forward-looking - they constantly monitor not just current conditions but expectations of what's to come. A country that appears politically stable and economically strong will generally attract more investment, increasing demand for its currency.

Key economic indicators that markets watch closely include:

• Gross Domestic Product (GDP): the total value of goods and services a country produces
• Unemployment rates: lower unemployment generally signals a stronger economy
• Trade balance: the difference between a country's exports and imports
• Housing data: used as an indicator of consumer confidence and economic health

If any of these indicators come in better or worse than expected, it can cause the currency to move. Political events - elections, government policy announcements, international tensions - can also trigger significant volatility. Many British expats in France will recall vividly how much the GBP/EUR rate moved during the Brexit negotiations, for example.

What this means for your transfers

No single formula can predict with certainty where exchange rates will move next. But having a basic understanding of the forces at play can help you make more informed decisions.

Here are a few practical ways to navigate exchange rate fluctuations:

• Set up rate alerts. With the Britline International Payments Service, you can receive notifications when the GBP/EUR rate reaches a level that works for you - so you can transfer at the right moment without constantly monitoring the markets.
• Consider a forward contract. If you have a large transfer coming up - for a property purchase or other significant expense - a forward contract lets you lock in today's rate for up to two years, protecting you from adverse movements in the meantime.
• Automate regular payments. If you transfer money on a regular basis, a regular transfer arrangement means your payments go out automatically, without you needing to time the market each month.
• Talk to our team. Our currency specialists are available to discuss your options and help you choose the approach that's right for your situation.

The more you understand about how exchange rates work, the better placed you'll be to manage your money across borders with confidence.

The Britline International Payments Service offers tools including rate alerts, forward contracts, and regular payment arrangements to help you navigate currency fluctuations whatever the market is doing. Find out more about our exchange solution.

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Our friendly and bicultural team of English-speaking advisors have been helping our customers with all their banking needs in France since 1999. Most of the team have lived both in the UK and France, so they can understand what life is like both sides of the Channel.

Feel reassured that you will always have access to real people who understand you and speak your language: contact our friendly team of English-speaking advisors who will help you set up your bank account including access to the Britline International Payments Service.

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First published: 15th June 2026
Image used is provided by Adobe Stock