Primary Factors
- Growth - Changes in the
country’s Gross Domestic Product or GDP that gives a useful measure of
growth. A growing economy tends to strengthen a currency.
- Rates - Short term interest
rates affect Forex rates.
- Trade - The country's trade
and current account balance can have an impact on Forex rates.
- Economy - The general
economic outlook for one country in relation to that of the other country
can affect Forex rates.
Economic Factors
- Interest Rates - A key
element in evaluating one currency against another. If interest rates are
increased, the currency of the country becomes more attractive against
other currencies offering lower interest rates.
- Inflation
- Trade or Currency Account
Balance - A trade or current account surplus or deficit will either favor
the currency rate for the country with a surplus or weaken the rate for the
country with a trade deficit.
- Credit - Another economic
factor that will influence exchange rates directly. If a country has
borrowed excessively large sums of money from other nations or from the
IMF, its currency will surely reflect the serious level of debt the
country is in.
- Gross Domestic Product (GDP)
- Represents the total of goods and services a country produces and
reflects the level of growth in the economy.
- Commodity Prices can also affect
exchange rates.
- Employment Data - If a
country has an increasing percentage of its citizens employed that will
tend to strengthen its currency.
- Industrial Production - A
strong industrial base will tend to strengthen a nation's currency.
- Retail Sales - A strong
retail sales figure is generally favorable for a currency and the
country's overall economy.
- Consumer Price Index (CPI) -
A measure of inflation.
Other Important Factors
- Supply and Demand Effects -
Substantial flows of capital into one currency and out of another currency,
can shift the exchange rate for the currency pair to favor whichever currency
sees the higher demand.
- Monetary Policy - Because of
the effect of monetary policy on interest rates, this makes up an
important element in the valuation of a currency.
- Political Influences – It’s
widley known that the countries with stable governments tend to have their
currencies favored more over those countries with unstable goverments or
countries having less favorable political situations.
- Commodity Price - The prices
of key commodities like gold and oil tend to affect the valuation of the
currencies of their primary exporters and importers.
According
to Forex professional Carmelo Cerrelli, it’s imperative to have the knowledge of
the above mentioned Forex Factors.
