HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
MultiBank Group information and reviews
MultiBank Group
84%

What Affects Forex Rates?


Currency exchange rates have always been a considerable factor used to determine a country's economic health and stability. This is typically defined as the rate at which one country's currency is converted into an opposing currency. This rate is the basis of the forex market and trades. Such rates fluctuate daily as the supply and demand of one currency over another alter depending on market fluctuations and other mitigating factors. This article attempts to examine eight major factors that influence exchange rates and explains the reasons behind their volatility.

Inflation Rates


Inflation is the overall price increase of goods or services in an economy. It negatively affects a country's currency as each unit does not hold the same value as before, meaning the purchasing power of that currency falls as it can buy fewer goods. The currency of a country with a low inflation rate will usually rise in value, whereas countries with higher inflation rates will typically have its currency depreciate.

Interest Rates


Interest is payment due from a borrower to a lender of funds above the principal amount lent. It is calculated as the amount paid or received over a particular period, divided by the principal sum which was initially borrowed or loaned, and displayed as a percentage. Rises in interest rates cause a country's currency to appreciate because they provide higher rates to lenders, thereby attracting more foreign capital, which causes a rise in foreign exchange rates. Changes between this rate, forex rates, and inflation rates are all interconnected. 

Country's Current Account / Balance of Payments


Current account refers to a country's total number of transactions, including but not limited to exports, imports, debts, etc. Spending more on importing products than selling exports causes depreciation for a country. Therefore, many countries attempt to balance this, considering their impact on their domestic currency exchange rate.t

Government Debt


Countries with high governmental or national debt levels are less likely to acquire foreign capital, which leads to inflation. As a result, investors will sell bonds, which leads to a decrease in the value of the country's exchange rate.

Terms of Trade


Terms of trade are the ratio between export prices and import prices. These terms generally improve when export prices rise at a greater rate than import prices, which results in higher revenue. Overall, this increases the demand for the country's currency, which increases its value. Ultimately this results in an appreciation of the foreign exchange rate.

Political Stability & Performance


The political situation of a country also dramatically affects its currency strength. Less political turmoil is more attractive to foreign investors, as the country is more stable. Additionally, sound financial and trade policies do not leave room for uncertainty.

Recession


This is a business cycle contraction due to a generic economic decline. This causes interest rates to fall, which reduces a country's chances of acquiring foreign capital. As a result, its currency weakens compared to that of other countries, therefore lowering the exchange rate.

Speculation


This final factor is based on individual and market expectations and predictions. This is because when a country's currency value is speculated to rise, investors will demand more of that currency to make a profit in the future. As a result, the value and exchange rate of the money will increase.


RELATED

Why every trader needs a trading strategy

A trader without a trading strategy (TS) is like a driver with no map. Whatever your strategy is, it will help you deal with the chaos happening in the markets. This article...

How to Become a Professional Trader?

After learning more about the world of trading and getting real money from your trades, you might start thinking about becoming a professional trader. But what makes a professional trader?

Insider Trading: What It Is, What It Isn't and Is It Worth It?

The term "insider trading" has been popping up in the headlines recently. There's talk of big-name politicians and business tycoons being investigated for it...

Most Important Forex Regulators in the World Today

It is important to regulate forex because the amount of money which passes through the market everyday makes it very attractive for all sorts of scammers...

Important Factors in Trading Forex

Whether you are already investing in the Forex markets with Olymp Trade or you're looking to start, there are many things to consider and understand in order to find more...

Position Trading vs. Swing Trading: Differences and Similarities

Position trading and swing trading are two prominent trading strategies that you can use to access the markets. Both methods provide market opportunities as you trade...

The Bitcoin's smarter brother: an Octa's guide to Ethereum

What makes this digital asset so unique, and what drove its robust growth over the recent years? In this article, the experts at Octa, a financial broker with globally recognised licences, give a rundown of the ETH's impressive ascent in the world of cryptocurrencies.

What Is a Stock Index?

A stock index is used to describe the stock market's performance or a specific part of it and compare the returns on investments. In general, an index uses a weighted average of stock prices...

What is Algorithmic Trading?

Algorithmic trading (also called automated trading, black-box trading, or algo-trading) uses a computer program that follows an algorithm (a defined set of instructions) to place a trade...

How to Trade Oil CFDs: A Comprehensive Guide

The oil and gas industry encompasses different types of oil, such as crude oil, no-lead gasoline, natural gas, and heating oils. Among these, crude oil remains...

Why Trade Precious Metals

Precious metals are a popular way to diversify a trader’s portfolio. They also act as a hedge against currency inflation or economic instability. Examples of the three most popular traded precious metals are gold...

IronFX: How do I start trading forex online? A complete guide

Simply put, forex is a financial market that allows trading currencies globally. If traders believe that a currency will be stronger in value than its pair and if this is indeed the case in the end...

Why Trade Indices

Indices trading describes the buying and selling of a specific stock market index. An index shows the performance of a group of stocks. When the price of a group of stocks go up...

What are some advantages of CFD trading?

Contract-for-difference (CFD) trading is a popular alternative to traditional investment. Over the past decade, its popularity has increased considerably while the specific features offered...

Addressing Trading Biases: Managing Psychological Factors In Day Trading

In the intricate world of day trading and investing, psychological dynamics play a crucial role in shaping decision-making and overall success. Traders, regardless of their level of expertise...

How to control your emotions while trading

Controlling one’s emotions while trading requires practice and mindfulness which means forex trading psychology. This presents a unique challenge for all traders when...

Slang and financial markets: animals in trading

Animals and the money: Octa broker gathered the most popular slang words in financial markets.

Altcoins, Bitcoin, DeFi, NFTs: Various Types of Cryptocurrency Explained

According to the current running total on cryptocurrency price aggregator CoinMarketCap, there's over 9,000 types of cryptocurrency in the crypto market today...

How To Become A Successful Trader In 2023

In today's world, trading has become an attractive career choice for many individuals looking for financial independence and flexibility. However, becoming a successful trader requires more than just basic knowledge...

The Worst Mistakes to Avoid When Trading Forex

When someone tells you that trading Forex is easy and you can make tons of money with a few flicks of a finger, know that he is either a fool or a charlatan. Before...

XM information and reviews
XM
82%
FP Markets information and reviews
FP Markets
81%
FXTM information and reviews
FXTM
80%
AMarkets information and reviews
AMarkets
79%
Octa information and reviews
Octa
79%
BlackBull information and reviews
BlackBull
78%

© 2006-2024 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.