What Affects Foreign Exchange Rate?

Yen! Euro! Dollar! Franc! Pound! There are many choices and decisions to make when it comes to forex trading, and the task can seem pretty daunting. If you have decided to try your hand at the foreign exchange market, newly opened to the individual investor through the advantages of online trading, the fact is that all the information you will need to gather and all the factors that will need to be taken into account in order to be profitable in your venture will only add to the confusion. There are several areas to consider when it comes to foreign exchange, factors that have their effects in many areas of a country’s economy and thus on the rate of foreign exchange.

Do not assume that just because you have chosen to invest in foreign exchange means that you are free from other areas of the market. Stocks have a direct and sometimes massive effect on a country’s rate of exchange. If a large corporation is planning on outsourcing or opening big offices in a country, whether the country is large or small, the news will have a direct affect on the rate of exchange. Locating to a country is an investment move on the part of the company itself, and thus signals its confidence in that country as a prospective capital gainer. The exchange rate of the country’s currency can be expected to directly reflect this view as corporate investors begin to invest in the company in foreign currency to match interest rates.

Likewise, commodity prices also have a direct impact on forex rates. A country with a large amount of a commodity that is in demand, such as oil and recently copper, will inevitably se its economy begin to grow stronger as a result of the rising prices. This will also affect any countries that are short on the commodity in demand, as they grow increasingly dependent on other countries for their economic functions at the ground level.

The domestic policy of a country in terms of economics can also directly impact its currency on the exchange market. In this way, democracy can have a huge role to play as far as the forex trader is concerned. An elected government that ushers in fiscal policies aimed at reducing debt and eliminating deficit will mean a stronger economy as less monies are put towards interest payments. The boost will inevitably play out in the currency value of the country.

It should be fairly obvious that any person who hopes to be a player when it comes to foreign exchange will need to commit to a certain amount of homework. The natural resources ofa country, its governmental policy, and its interest rates are all very important factors and can make or break a forex trade.