What Moves Currencies in Forex
The Forex market is extremely large and varied. Given the fact that this market encompasses currencies from all over the world, it is not possible to figure out each and every factor that will move currencies in any country, but we can give you a general idea of what to look out for as you are hoping to predict movement in the Forex market.
Obviously, the biggest movers of any market are Supply and Demand. When more people want the currency then want to sell it, the currency will gain value. When people are looking to sell that currency and there are fewer buyers, the currency’s price point will decrease. The key to understanding what moves the prices of currencies will then be understanding what makes people or companies want to buy that currency or want to sell that currency.
The interest rate in the country whose currency you are watching is one of the best clues as to which in direction that currency will move. When you compare the interest rates in the two countries that are involved in the currency pair and they are both moving, then it is very likely that the currency pair will move as well. When interest rates are on the rise it usually indicates the currency will be on the rise and the reverse is also often true. If a country lowers their interest rates there will most probably be a decline in the value of that country’s currency.
It is important to realize that in the Forex market it is not always an actual interest rate that moves the market but many times it is an expected change in interest rate that will cause Forex traders to make their trading decisions and will result in a move in the market. Watching the economic calendar and knowing when interest rate news is likely to be released will help you watch out for changes in supply and demand of currency.
Other economic news releases also affect Forex trading decisions, so they will move currency prices. When a government or private organization releases information about a country’s economy, it is an indicator of the strength of the economy of that country and will influence currency trading. Keeping your finger on world economic news is very important when you are watching for currency movement.
Retail sales reports can also lead traders to make Forex trading decisions, resulting in moving the currency market. When a country has a strong economy, their retail sales will be higher, indicating that their currency will be valuable. In the same vein, Gross National Product will work the same way. A high GNP will imply a successful economy and will lead to higher currency value. Of course, the opposites are also true. Low retail sales reports and lower GNP will lead people to sell off the currency of that country and move the Forex market in the opposite direction.
Politics can play an important role in moving the Forex market as well. When a country is experiencing political unrest, it can certainly affect their currency negatively and when a strong leader comes into power it can move the currency in a positive direction.
Movement in the Forex market can be caused by countless sources, and this is just a sampling of a few of the most common ones. For a more in-depth study there are many resources available.