Business and economics |

Factors that Cause Currencies to Fluctuate

Posted on January 13, 2008
Filed Under Forex Education |

In Forex Trading, the cumulative buying and selling of a currency causes it to move either up or down. There are numerous factors that cause the fluctuation of exchange rate.

• Government and Central bank monetary policy and balance of payment.
• A country’s political, social and fundamental economic environment such as economic growth rate, inflation and interest rate.
• The inflow and outflow of capital between nations - be it physical or portfolio flow.
• Central bank abilities to back up it own currency during speculative attack will provide faith to calm its currency price.
• Speculative activities by professional currency manger with billions of funds can also sometimes move the market.

Movement of the currencies is ultimately dictated by demand and supply. However, predicting demand and supply in Forex Trading is not as simply and straight forward one would think.