What Moves Currency Rates?

In the currency market, traders buy and sell currencies with the hope of making a profit when the value of the currencies changes in their favor, whether from market news or events that take place around the world. Currencies, just like any other commodity that can be bought or sold, are subject to the laws of supply and demand.

When more people want a particular currency, the cost of the currency in terms of other currencies will go up. When demand decreases or people do not want to hold a country’s currency, the value will go down.

What factors affect supply and demand for a currency?

Investors want to be sure that they are investing in a solid economy that is achieving steady growth. Currency traders looking to assess the economic growth of a country will look at unemployment, trade, and GDP data.

Money tends to follow interest rates. If interest rates go up, money will flow into the country from all over the world as investors seek to capitalize higher returns. To determine whether interest rates will rise or fall, investors pay attention to economic inflation indicators as well as speeches by influential figures. Generally, the timing of interest rate moves are known in advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks.

Election turmoil, changes of government, high unemployment and international conflict all make investors cautious to put their money in a given country. Investors will watch for major news that comes out of a country.