Trading currencies is essentially like trading shares in a particular country, and this means that traders are looking for signals of a country’s economic performance to determine how a particular currency will perform. While there are many economic and political factors that can influence Forex pairs, below are some of the most important and some of the factors that will ultimately have the greatest influence on currency prices. If you are looking to trade currencies using a platform like ETX- Capital, then you will need to learn about the following factors and identify possible signals and indicators.
Employment is widely seen as an indication of how well an economy is performing. A strong increase in employment is a sign that an economy is performing well, while a decrease in employment suggests the opposite. Most countries release monthly employment figures at set times, and it pays to keep a keen eye on these releases when trading currencies.
Interest rates are strongly linked to economic and currency performance. Higher interest rates tend to cause exchange rates to rise, while lower interest rates will have an opposite effect. However, other factors do need to be taken into consideration. For example, if a country has high interest rates but inflation is higher than in other countries, the currency may be driven down.
GDP is essentially a measurement of business and government spending, consumption by individuals, and export levels, as well as retail sale levels. It is important to remember that GDP is a measurement of factors that have already occurred so while it is an important consideration in the spread better’s playbook, there are other factors to take into account as well.
Political instability in a country can lead to a weakening of the currency, as investors look to invest their money in a country that is stable and free of turmoil. Any political or economic event can lead to movement within the forex market and an increase or decrease in exchange rates. Factors that are considered positive will usually see the currency for that country strengthen and vice versa.
The balance of trade is a good indication of economic performance. If a country sees a sharp increase in export value, then this is a sign that their exports are desirable and that the country’s currency will increase in value. This is driven by the fact that buyers will need to buy that currency in order to exchange it for the exported goods. This increased demand for the currency means that its price will increase.