Understanding forex market is not enough to make profitable trades. It is important to comprehend with the factors that are responsible for fluctuating exchange rates. Do you know what causes currency exchange rate to fluctuate? Check the facts below to understand how and why exchange rate fluctuates.
Factors that fluctuates currency exchange rates include:
- Supply and Demand:
Forex forecasts are based on supply and demand of currencies. The supply and demand are responsible for influencing the price or value. This is considered as one of the basic economic factors from where exchange rate fluctuation gets a start.
- Economic Strength:
If the economic growth of a country becomes unstable, then it will lower the value of one currency in relation to another. The forex currency forecasts this factor to determine whether the country’s economy will be backed up or fall shortly.
A strong economy always leads towards strong and stable currency for the country. Here, GDP, unemployment rates and other factors are also considered and monitored closely.
- Trade Balance:
Trading balance or balance of trade should be maintained to keep the exchange rates at the positive side. The balance of trade suggests import and export of goods and services between two countries. Keeping a check is also very essential.
Suppose a country has a trade deficit, then value of imports will become greater than value of its exports. This suggests that a trade deficit will lead to lower the value of exchange rate and trade surplus will increase the value of exchange rate. Currency forex forecast is thus, playing a vital role in forex market to understand the movement of price with ease.
- QE (Quantitative Easing):
QE is defined by the Central Banks and will provide greater liquidity to boost up the economic status of a country. For doing the same, Central Banks have to buy assets (or lend capitals) from government-funded banks. This usually increases the supply and demand for a particular period. If everything remains unaffected, then this will make up the deficit after a long run.
Unfortunately, if it deteriorates after a specific interval, it will further hamper economic growth. In determining forex forecasts, this factor can make a huge difference in exchange rate.
- Unemployment Rate:
With the increasing demand of job, unemployment in any state of a country will shake exchange rate values. In this regard, unemployment rate is the major factor that indicates economic strength of a country.
This suggests that if country’s employment status is good, it will boost up the country’s economic. The government should take steps to maintain employment statistics for balancing currency deficit that will be obtained through forecast, and forex currency forecasts will help in making the trades on right places.
- Interest Rate:
Traders are attracted to higher interest rates for their currency investments. For this reason, Central Banks sometimes make a change in the interest rates of a particular currency. If everything goes in favor, then it will boost up the economy.
Forex forecasts for exchange rates will check whether there is an increase in interest rate of a country or not. All these factors thus, helpful in determining the same with accuracy.