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What affects the exchange rate on forex?

Fundamental factors affecting the exchange rate: discount rate, macroeconomic indicators, statistical data and psychological factors of influence.

Forex – this is earnings on exchange rate fluctuations. The task of the trader is to analyze macro- and microeconomic statistics, news and psychological factors that affect the quotes of a currency pair. From this review, you will learn: what are the main fundamental factors affecting the exchange rate, how to analyze them, how the market reacts to all kinds of news and get acquainted with the story of how George Soros opposed the Bank of England.

Factors affecting the exchange rate

This article, first of all, will be of interest to those who are just trying their hand at Forex and want to understand more deeply the fundamental factors affecting currency quotes. I think that professional traders are already familiar with this, but perhaps the review will be interesting for professionals.

Exchange rates: the principle of formation, fundamental and psychological factors

Forex currency trading is pure speculation since no additional product is created from buying and selling foreign currency. This means that if someone earns on the growth rate, then someone loses money. There is also a common market factor when the overall market capitalization falls, that is, all currencies are simultaneously becoming cheaper. But this only means that some other asset is becoming more expensive.

For example, if the exchange rate between the currencies of the US dollar and the euro is 1: 1, it changes to 1: 2 (for 1 dollar you can buy as much as 2 euros), this means that the euro is getting cheaper or the dollar is strengthening. If the rate remains 1: 1, but earlier it was possible to buy 10 grams of gold for 1 dollar, and now only 5 grams, then we can say that both currencies are cheaper in relation to gold. Or gold is getting more expensive.

The price of a currency is a relative concept since it is always expressed in something. And therefore, the US dollar was taken as the basis. The value of other currencies is determined in relation to it.

If it is necessary to determine the value, for example, of the British pound in Japanese yen, then they do it through a cross rate, where the value of one currency in another is determined by the ratio of their rate to the third currency. Now more about what does affect the value of a particular currency.

The exchange rate is:

  • Fixed. Set by the Central Bank in manual mode, it is a fixed value for a certain period of time. Floating. It is formed on the basis of market factors (supply/demand). The central bank affects the market only indirectly, for example, acting as a counterparty to the purchase or sale of foreign currency.
  • Fixed. Set by the Central Bank in manual mode, it is a fixed value for a certain period of time. Floating. It is formed on the basis of market factors (supply/demand). The central bank affects the market only indirectly, for example, acting as a counterparty to the purchase or sale of foreign currency.

A vivid example is a Swiss franc. As soon as the Central Bank of Switzerland abandoned the hard exchange rate in January 2015, the national currency immediately increased several times against other currencies, upsetting those who bet on the US dollar in a pair.

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