Determinants of Exchange Rate

KJ

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My previous forex experience was filled with losses that I attribute due to my sole focus on technical analysis. Now, I think I've got an idea of what drives the rates of exchange between currencies. I'm approaching things from a fundamental POV and profit is starting to look good currently.

The following factors are what influences the value changes between currencies.

  • Balance of payments (If a country is in a deficit the domestic currency will weaken)
  • Interest Rates (Strengthens Currency)
  • Inflation (Weakens Currency) (Though, may sometimes strengthen due to anticipation of higher interest rates brought on by central bank)
  • GDP, employment levels, retail sales, capacity utilization, etc. (Strengthen if healthy economy and vice versa)
  • Government Market Intervention (Depends if exchange rate is harming economy and/or trade)
  • Economy Productivity (Strengthens if high productivity)
 
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