To the uninitiated, the currency markets can be incredibly hard to understand. It’s easy to believe that the trends that emerge are drawn by the fickle hand of fate, and that there is no rhyme or reason to the rises and falls in currency values.
Yet such an idea is erroneous. In truth, there are thousands of factors that can influence prices, each of them interacting with the others to create a delicate spider-web of strands, the value of a nation’s currency written at its centre.
To help you to better understand how they work and what to look for when you trade, here are a few handy pointers…
#1: Political Events
One of the main drivers of forex prices is the political events within a country, and Britain’s recent vote to exit the European Union is a prime example. Following Brexit, we saw the pound drop to an astonishing 31-year low, with currencies around the world feeling the shockwaves. From elections to cabinet reshuffles, whoever’s in power can make all the difference to how much a currency is worth.
#2: Central Bank Decisions
Forex investors will also keep an eye on central bank decisions, as these can severely impact the value of a currency. Rises and falls in interest rates, in particular, will almost always have an effect.
#3: Economic Turmoil
If you’re considering trading the currency markets, you’ll also need to have an eye for emerging economic toil. The global recession of 2008 is a perfect example, and caused the value of currencies around the world to plummet. Falls in production, declining employment rates, and so on can have similar effects.
Conflict is another issue to keep an eye on when assessing the future of a nation’s currency. Although some countries will benefit from such inhumanity, as it can stimulate their arms industries and similar sectors, afflicted areas are likely to see a fall in the value of their currency due to the likely loss of life if the issue should escalate. Syria is an obvious example of this, and the migrant crisis it prefaced sent shockwaves far beyond the borders of the country itself.
Although we have only listed four potential market drivers above, there are thousands of factors that can affect the price of a currency, and it pays to know what they are. By educating yourself to the point where you can identify them as they begin to emerge, you will be able to apprehend such trends, and thus come to profit from them. Trade wisely, and you could reap significant financial rewards.
***Photo thanks to LendingMemo.com***