Factors that influence the Foreign Exchange Market
Foreign Exchange Market The daily turnover of the foreign exchange market exceeds $4 trillion, making it the largest market in the world. Forex trade is large and affected by changes in exchange rates, which are often affected by interest rates and exchange rates. In a complex environment, many factors combine to affect the currency and exchange rates, pushing them up or down. 1. Central Banks Central banks are the most critical factor that affects the forex market. Central banks control currency supply and influence exchange rates. Furthermore, changes in interest rates and monetary policy can potentially affect foreign exchange markets by directly influencing the currency demand among investors. When, for example, a central bank decides to raise interest rates, investors are more interested in investing in bonds or other securities issued by the country as they can earn more profits. 2. Economic Indicators Using economic indicators to predic...