What is the use of forex
What is Forex and how does it work?
What Moves the Forex Market?
The forex market is made up of currencies from around the world. This can make it difficult to forecast exchange rates, as there are many factors that can contribute to possible price fluctuations. However, like most financial markets, forex trading is primarily driven by supply and demand. It is therefore always essential to gain an understanding of the influencing aspects that can trigger price fluctuations.
The supply is controlled by the central banks, which can regularly announce measures that will have a significant impact on the price of their currency. With quantitative easing, for example, increasing the amount of currency in an economy results in a decrease in the value of the currency itself.
News and economic data
Commercial banks and other investors tend to invest their capital in economies that have good credit ratings. These are generally viewed as more secure investments than countries with lower credit ratings. So when positive news about a particular region hits the markets, it will encourage investment and increase the demand for that region's currency.
Unless there is a parallel increase in supply for the currency, the imbalance between supply and demand will increase its price. Similarly, negative news can cause investments to lower the price of a currency. Because of this, currencies generally reflect the economic health of the region they represent.
The market sentiment that so often emerges in response to the latest economic data and news can also play an important role in determining currency rates. When traders believe that a currency is being steered in a certain direction, they will act accordingly and can convince others to follow suit by increasing or decreasing demand.
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