Factors that Affect Currency Value – Part 1

Before we look at factors that affect currency value, it is worth remembering what currency value reflects. So,

the value of a currency reflects:

  • The condition of the economy of a particular country
  • The economic outlook relating to a particular country
  • The overall market sentiment, or, the overall attitude of traders towards that currency

Let’s take them one by one.

Currency value reflects the condition of the economy of a particular country, in that value rises in times of economic stability and growth, and falls in periods of economic instability and weakness.

Currency value reflects the economic outlook relating to a particular country, revealing whether the future looks promising for the economy of a particular country. Is it likely that a country will experience progress and economic growth in the months to come? Or is it more probable that it will sink into stagnation and remain a weak competitor?

And, last but definitely not least, currency value reflects the overall market sentiment, or, the overall attitude of traders towards that currency. Indeed, it is often the case that what drives currency value in any direction is speculation, that is, what traders and market participants anticipate from, or predict for, the future.

Did you know?

The GBP/USD pair is widely referred to as “cable”. The term dates back to the 19th century, during which the exchange rate between the U.S. dollar and the British Pound was transmitted across the Atlantic via a huge cable that ran across the ocean floor and connected the two countries.

Word of the day
"Chart Pattern" - A specific formalised shape, created by an asset’s ever-changing price, indicating potential future price movement.
Pro Tip

Always have an exit strategy.

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