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

Stop Loss: the lifeline of every trader

Stop Loss (SL) is one of the most important concepts in the FX market. Every trader has the opportunity to benefit from this trading tool.

The Evolution and Significance of Forex Trading

Ever since its establishment in the 1970s, forex trading has seen a rapid transformation. One of the chief driving forces behind its monumental growth has been the explosion of technology, which enabled the creation of online trading platforms...

Earnings Season: What Are They And How To Trade On Them

While marketing campaigns and plans from the top management are good, nothing says "We are successful" as well as a positive quarterly earnings report...

The Strongest Currencies in the World

Have you thought about what the highest currency in the world is? Is it the US dollar, the euro, or the British Pound? No, they are not. They are the world’s most famous, most traded...

Everything You Need to Know About Margin Trading

Margin trading is a popular method used by traders all over the world. It can offer attractive opportunities, but as with any form of trading there are no guarantees and the level of risk must be taken...

7 Common Investment Myths That You Probably Believe

The reason why the investment market is so unique is that almost everyone knows what it is, and almost no one understands how it works. It gets even worse. You see since it’s so popular in popular culture/cinematography, a lot of people have illusory scenarios of how this should work.

How to use MT4 WebTrader: A Useful Guide

In 2005, the MetaQuotes Software released the MetaTrader 4 trading platform which is an electronic trading platform that includes all the required features...

AUD/USD correlation explained

The AUD/USD correlation reflects how many US dollars are needed to buy one Australian dollar. It means that if the currency pair is traded at 0.85, then $0.85...

What is a Limit Order?

A limit order is a buy or sell order of a digital asset at a specific price. A buy limit order can only be executed at or below the limit price, while a sell limit order can only be executed at or above the limit price...

MultiBank Group: Top Macroeconomic Indicators To Look For

Macroeconomic indicators are a key part of fundamental analysis. Their statistics provide insight into the state of a particular country’s economy. Macroeconomic indicators...

Beginner's Guide to Forex Trading with FXTM

If you're new to the world of forex trading and looking to embark on your trading journey, you've come to the right place. Forex trading can seem complex at first, but with the right guidance...

What Are Commodities and How to Trade Them?

Since the beginning of human civilization, commodities have been a vital investment asset. In short, a commodity is a basic good or raw material that people buy and sell...

Understanding the Piercing Candlestick Pattern in Trading: Benefits and Limitations

The vast world of trading is replete with countless patterns and technical indicators, each promising its own set of advantages. Among these, the piercing candlestick pattern stands...

Forex Copy Trading: A Complete Guide

Copy trading is an increasingly popular trading strategy among forex traders. Like its name suggests, copy trading involves copying or following the trades made by other traders...

How to Spot a Bull or Bear Market?

There are two important terms in financial markets that can help investors understand and react to certain situations. Both bull and bear markets describe how markets...

Basic Concepts Of The Stock Market And Their Applications

A stock market is a trading floor where stocks listed by companies are traded through direct exchanges between multiple parties (OTC). This kind of interaction...

MetaTrader4 vs. MetaTrader5

A trading platform is basically a workspace for traders, their work environment. The quality of trading depends on its functionality and convenience. Many market...

Crypto rading for Beginners: Best Strategies and Patterns

Today, there are more than 19,000 cryptocurrencies in existence and counting. On the one hand, crypto trading opens up huge opportunities. On the other hand, such a wide variety can...

Technical and Fundamental analysis

Technical analysis complements fundamental analysis by focusing more on numbers, patterns, and statistics, instead of the intrinsic value of an asset...

What Is A Blockchain Bridge?

Today, Bitcoin and other cryptocurrencies dominate the discussion in finance and on Wall Street, but what makes these emerging assets so valuable is the blockchain...

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%

© 2006-2025 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.