Economical Factors That Cause A Currency Price Changes

economy factors that make price changesAs economical factors show a level of country’s development, they have a direct influence on the rates of a national currency.

There are main economical factors and events that every Forex trader working with the fundamental analysis must know and follow.

1. Official reports showing the level of economic development.

Stable economic growth is an indispensable condition for attracting investment flows into the country and its price chnages. Accordingly, this leads to an increase in demand for the national currency of the country, whose economy is attractive to investors. Such reports usually include an assessment of trade and balance of payments, inflation, unemployment, gross of the national product, etc.

2. The results of trade negotiations.

Trade negotiations are an important part of the economic policy of any country. In particular, the ratio of indicators such as imports and exports, gives such an important amount of economic development as the trade deficit. For example, for few years the USA has experienced the trade deficit, which plays a significant role in the collapse of the USD against European currencies. The results of trade negotiations are immediately reflected in the Forex market.

3. Central Bank meetings.

The main activity of the Central Bank is to regulate the domestic economical situation in the country. Another function of the Central Bank is to control internal and external value of the currency. For this reason, any meeting of the Central Bank is an important event for the foreign exchange market participants. Different activities of interest rates regulation represent one of the main ways to stimulate or, conversely, slow down the growth of the economical development. Accordingly, a consequence of these activities is the amount of foreign investment and the attractiveness of government bonds. These two factors have the biggest influence on the valuation of the national currency.

4. The speech of the Presidents, Heads of Central Banks and leading analysts (the subject is a real and potential market situation).

In most cases, this factor has an immediate response in the Forex market. For example, September 29, 1995 Lumier, managing the Swiss National Bank, spoke about the fact that Switzerland is not interested in the power of its own currency. As a result, this statement has caused a sharp raise of the Swiss franc.

Another example is the speech of the well-known economist Bergstein. In his speech he noted the decreasing of the USA trade balance and unjustified expectations of the supplementary budget in Japan. As a result, within two days a catastrophic collapse of the Japanese yen was recorded.

Quite often, especially when there is a certain economic climate, a speech of a person can not only lead to the change in the behavior of a national currency, but also dramatically change the entire Forex market.

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