4 factors that affect Forex market
Forex, or foreign exchange, is defined as a network of buyers and sellers, who are involved in the transfer of currency at an agreed price. It is one of the ways by which individuals, companies, and central banks engage in the conversion of one currency into another.
If you are a frequent overseas traveller, then you may not be new to Forex transactions.
However, if you observe carefully, forex exchange rates keep fluctuating at all times. In this article, we will discuss the factors that affect the forex market.
1. The political scenario of a country:
When you want an economy to grow and perform well in the market, it takes more than the currency value to rise. The government of the country should be equally willing to take the required steps to up the standard of living. Hence, if the government of the country is stable, then investors take it as a positive sign to invest in the economy. Also, this stability brings in fewer roadblocks and more changes of growth.
2. Inflation rate:
This one the most crucial factor that has a significant impact on the forex rates is the inflation rate. A lower inflation rate of a country will result in less appreciation of its currency. Investors see this as an adverse sign to invest or engage in forex with such currencies.
3. Government debt:
Another factor that affects forex rates is the debt of the government. If a country’s government is debt, then investors avoid engaging in any kind of investment or currency exchange with that country. So, if the debt on the country is higher, then the chances of attracting foreign capital will go down drastically.
4. The capital market:
The trend of the capital market of an economy spells a lot about how lucrative will it be to engage in forex trade with it. Investors generally, take a good look at the stock market of an economy to see how it has been performing over the years. This necessarily decides if the investors will engage in any kind of forex with the economy.
Apart from this, the:
- Interest rates of a currency
- Terms of trade
- Speculations about the future performance of an economy
- Employment rate
- Economic planning and execution
These are also some of the factors that affect the forex rates. Investors should take them into account before they engage in currency trade with any economy.