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Which factors influence the exchange rate?

Discussion in 'Forex' started by TheCapitalManager, May 17, 2014.

  1. TheCapitalManager

    TheCapitalManager Registered

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    Today, We would be going back to the basics and understanding " How Forex works ?''

    As you may know any other market demand and supply determine the price of an asset, in this case the asset is the exchange rate between one currency and another currency.

    Exchange-rate Regime

    This is valid for a currency regime with free floating rates. The other two main exchange rate regimes are:

    - the so called pegged float and
    - the fixed rate regime

    Currencies such as the Chinese Yuan are not floating freely as they are allowed only to trade within a limited range around a certain price level (pegged float). It is almost impossible to make money trading a currency like the Yuan which can only be traded in a fixed corridor. Other currencies are fixed completely to the value of another currency and are not tradable independently.

    Four Main Fundamental Factors

    If you trade the highly liquid major currency pairs which are available to trade via the Forexchampionship you need to be aware of the fundamental factors which influence the exchange rate between two currencies.

    The four main factors are:

    -Monetary policy
    -Economic growth
    -Interest rates

    These factors are linked and influence each other. Furthermore the creditworthiness of a country and its status as a reserve currency play an important role.

    These are the most important fundamental factors which can influence a currency but certainly this list is not complete.

    Other Factors

    As we have seen lately with the tensions between Russia and Ukraine geopolitical events can influence currency prices. The immediate reaction of the market after the events in Ukraine over the weekend was to buy the US dollar and the Japanese yen.

    The USD is still the worlds reserve currency No.1 and the yen is the favorite funding currency in the carry trade. In times of crisis investors seek the safe haven of the US dollar and carry trades get unwinded as they are considered risky.


    If you are aware of whats driving a specific currency fundamentally and if you manage to combine this knowledge with technical analysis you have a good chance to succeed in currency trading.
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  3. Tanzil Al Banna

    Tanzil Al Banna Registered

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    Definitely, fundamental issues! In high voltage news session you may see huge ups and downs in a second! So, I believe fundamental analysis is much powerful than technical. On the other hand, I get best news trading service from economic calendar of TradingBanks broker! This is way, I confidently using big events of fundamental session.
  4. Raymond V. Boyd

    Raymond V. Boyd Registered

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    There are lots of factors which influence forex market price action. They are inflation, economic factor, news, non firm payroll, interest rate etc. actually it is all about fundamental analysis. I use both fundamental and technical analysis to determine the future price action. Now I am trading with CapitalsTrade. It is a regulated and licensed broker in Vanuatu. It is providing me low tight spreads, high leverage, mt4 trading platform etc.
  5. Joe Hoover

    Joe Hoover Registered

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    In any forex trading, exchange rate is the foundation. We exchange one countrys currency for another countrys currency here. So we traders are basically give our full concentration on the changes in the exchange rate. The basic factors that can influence exchange rates are two types: the global economical factors and the national economical factors of countries. However, while we are talking about a nations influencing factors, inflation, monitory policy of that nation, interest rate in the market and economic growth of a nation will have significant impact on the value of the currency of that nation.

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