Factors that Affect Foreign Currency Trading

With any investment, if you are able to research and learn about the various factors that can affect your investment either postively or negatively, then you will have an advantage.  In the area of foreign currency trading, or forex, there are a number of different global factors that affect the price of money.

Here are a few key factors that affect foreign currency trading:

Economic Growth

A country that is experiencing strong, stable, growing economies tend to attract more capital.  They get more business growth in their countries, and experience more import and export.  As their economy grows, their currency becomes stronger.  You can measure economic growth through standard measurements such as gross domestic product, consumer confidence, industrial production, employment, and retail sales.  These standard measurements can give you a clear indication that a country is experiencing economic growth.

Inflation

Inflation rates are another standard measurement that can be tracked.  Inflation lowers the value of a countries currency.  A country that has growing inflation rates tend to see their currency values decline.  High inflation rate will often also affect other values such as consumer confidence and retail sales.  High inflation can have a ripple affect through the rest of the economy.

Interest Rates

Interest rates are often set by the central banks in a country.  These are the rates that financial institutions charge to borrow money.  But beyond the rate for borrowing money, the interest rate can have a broad affect on a country’s economy.  By lowering the cost of money, a lower interest rate can often boost consumer spending and help improve the economy.

International Trade

A country that has a number of goods or services that are in high demand internationally will typically see the value of their currency rise.  This is due to the fact that buyers of their trade goods will typically have to buy that country’s currency in order to purchase their trade goods.  This higher demand for the country’s currency will cause the value to rise.

Political Conditions

Forex traders often monitor international news and guage how the political climate in any nation will affect the currency market.  For example, political elections can often affect monetary policies in any given nation.  If a fiscally responsible official is elected, the value of that country’s currency may see some growth.  Whereas countries that are politically unstable may see a time of economic decline.

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Richard is a full time professional, husband, father and blogger juggling all the responsibilities of life and running a blog. Richard enjoys writing about life and online money matters.

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