What Influences The Value of Forex Currency Pairs?
by Arina Smith Investing 03 March 2020
Value of Forex Currency Pairs
The Forex Currency Pairs trading market is an unusual one in many ways. That’s because it operates on a “pair” basis whereby the value of each currency is decided relative to the value of another. But how does this system work, and what factors and forces decide the value of each currency pair on the market?
Economic forces
The main way in which forex currency pairs can be made to fluctuate in value is, of course, as a result of economic changes. Many different types of economic events can influence this. One is the announcement of an interest rate change by a central bank. If a rate cut is considered to be on the cards, then the value of a currency can often drop. This happens due to the fact that fewer international investors are likely to want to buy that currency to invest in the country in question because the rates of return are less attractive.
The same goes for economic data releases. If a country is perceived to have unhealthy manufacturing or home building sector. For example, investors may decide to avoid investing in that country. Just in case it takes a long time to recover. Again, this means that the demand for the currency required to make such an investment is likely to drop.
Political events
The Forex Currency Pairs trading marketing market as a whole is highly globalized, but each individual currency is deeply linked to the fortunes of its home country. As a result, political events in that country can have a major impact on the value of that currency in its pairs with others. Take the example of Brexit. This long-running political saga in the United Kingdom has had a noted effect on the value of the pound. And on one occasion it even went down to its worst position in three years. Often, the reason these incidents can be so problematic, that they add to the levels of uncertainty in the market. As this OctaFX review shows, having a good and fair broker on your side in this scenario can make a lot of difference.
Sometimes, politics and economics can overlap to cause problems (or benefits) for currencies. In recent years, global central banks have largely been made independent. But politicians such as Donald Trump frequently make public interventions and urge central banks to do particular things. Which can create a feeling of uncertainty in the markets. This doesn’t always cause a value decline for currency pairs. Of course, but it’s something for traders to be aware of when making decisions.
The Forex Currency Pairs trading marketing market is particularly unusual, then, in its reliance on pairs when determining value. But what’s even more interesting are the broader forces that shape value in this sector. From major economic announcements such as interest rate changes to political events like general elections, all sorts of factors are at work in this diverse and dynamic sector.
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