With currency buyers and traders from every corner of the world taking part in daily transactions of trillions of dollars, Forex is truly a global marketplace.
Currency trading has become a more globalized activity and this means that trends and events across various sectors in different countries of the world play a significant role in Forex trading.
As a beginner, here are major global factors that you should factor in when making your market analysis with regards to currency value speculations.
1. A country’s macroeconomics indices
The major economic factors in a country – specifically the country that owns one of the currency pairs you’re planning to trade in - highly influences Forex trading choices. That’s because the economic health of a country has a direct impact on the value of its currency.
2. The general political climate
It’s not just the macroeconomic activities and trends that influence the value of the country’s currency. The general political climate can play a major role on that country’s economic outlook, and consequently, the perceived value of its currency. Experienced Forex traders are regularly monitoring the political happenings in their countries of interest (with regards to Forex trading and currency value) to analyse the economic policies a government may take and how it could impact its currency value. Such political decisions with directly impact the economy, and consequently the currency value- including tightening restriction in a particular sector, or, on the other hand, deciding to increase spending in that industry.
3. A country’s debt profile
A country’s debt profile can attract or discourage foreign investments, a factor which also plays a critical role in determining that country’s currency value. Foreign investors usually avoid countries with larger debts due to the fear of a higher inflation rate.
4. Interest rates
A country with high interest promises a higher return on investment, and so, will attract more investors, which in turn will improve the street value of the currency. Conversely, a country with low interest rates will offer a less interesting prospect to investors; and consequently with the potential impact on the currency value.