Factors affecting foreign currency trading : Foreign currency trading has many factors affecting exchange rates, in the end, currency
prices are a result of supply and demand forces. The world's currency markets can be viewed
as a huge melting pot: in a large and ever-changing mix of current events, supply and
demand factors are constantly shifting, and in foreign currency trading the price of one
currency in relation to another shifts accordingly.
In foreign currency trading
supply and demand for any given currency, and thus its value, are
not influenced by any single element, but rather by several. These elements generally fall
into three categories: economic factors, political conditions and market psychology .
Economic factors affecting foreign currency trading : Foreign currency trading is affected by economic factors including economic policy,
disseminated by government agencies and central banks, economic conditions, generally
revealed through economic reports, and other economic indicators .
Economic policy comprises government fiscal policy (budget/spending practices) and
monetary policy (the means by which a government's central bank influences the supply and
"cost" of money, which is reflected by the level of interest rates .
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Economic conditions include :
Government budget deficits or surpluses:In foreign currency trading the market usually
reacts negatively to widening government budget deficits, and positively to narrowing
budget deficits. The impact is reflected in the value of a country's currency .
Balance of trade levels and trends:
The trade flow between countries illustrates the demand
for goods and services, which in turn indicates demand for a country's currency to conduct
trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a
nation's economy. For example, trade deficits may have a negative impact on a nation's
currency .
Inflation levels and trends:
Typically, a currency will lose value if there is a high level of
inflation in the country or if inflation levels are perceived to be rising. This is because
inflation erodes purchasing power, thus demand, for that particular currency .
Foreign currency trading
is affected by economic growth and health. Reports such as gross
domestic product (GDP), employment levels, retail sales, capacity utilization and others,
detail the levels of a country's economic growth and health. Generally, the more healthy and
robust a country's economy, the better its currency will perform, and the more demand for
it there will be .
Foreign currency trading is affected by political conditions : Internal, regional, and
international political conditions and events can have a profound effect on currency
markets .
