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Forex markets typically deal with foreign exchange currencies. Like any other market, the currency market is also largely driven by and affected by the element of supply and demand. Many factors can have a strong impact on the Forex market. Some of the key factors are:
Economic News
This is one of the major economic factors that are capable of affecting the foreign exchange market. The impact of economic news is felt globally. If a country releases any important economic news at any time, it can have a positive or negative effect on the exchange rate of the country’s currency.
Real Estate Information
For any country, housing information is very important and can play a major role in the fluctuation of the foreign exchange rate. For instance, the US ministries release housing information of the country on a monthly basis that includes the information regarding houses that have been sold or those that are still under contract. The information regarding the increase in the inventory of houses can also be found on these releases. This information is extremely important as it indicates how the economy is currently performing. The growth and good performance of the real estate market act as an indication that the economy is performing well too. This plays a major part in determining the Forex rates.
Investors
Investors are strong players in the economy. Their beliefs and actions can swing the Forex market completely. If the investors are of the opinion that the dollar is performing well, the value of the dollar will grow positively in relation to other currencies while trading Forex. In case they are not very optimistic about the dollar, its value will dip in comparison to other currencies in the Forex market.
Trade
Importers in many nations import goods and services that they require from other countries. To pay them, they need to buy the currency of the country selling them the goods. This will keep the currency of the selling country in demand. Those countries that have a surplus of trade and can export their excess goods and services will always have a stronger currency in relation to those countries that have trade deficits.
Level of Risk Acceptance
People in different countries have a very distinct attitude towards risk. Some are risk-averse while others are very accommodating of risky situations. When countries are trapped in uncertain scenarios, people in risk-averse countries would move towards safer investment options like government bonds, etc. This creates great fluctuation in the currency rates of a country.
Political Stability
Political stability is yet another factor that can have a great impact on a country’s currency exchange rate. If a country is undergoing political turmoil or is facing political instability, the Forex market will be significantly affected by such events. For instance, if a country’s government changes, the currency of the country will be affected as well. Also, the currency of the neighboring countries, as well as the countries that are in business with the respective country, will be affected.
