The international currency exchange rates are largely affected by the behaviors of the governments in countries with highly traded currencies. Minding the economic and politically related environments will allow a trader to better understand how to rate currencies and also how to couple this fundamental analysis with technically analysis gathered from charts and data figures. The purpose of this article is to highlight the top factors that affect the international currency exchange rates.
1. Conflicts Weaken Local Currency. Whenever a government engages in a conflict in another country or even locally, the local currency suffers because investors are less likely to form relations with such country. As a result, the trade industry is weakened with the local currency. This can benefit investors that know how to hedge properly on a falling currency, so poor government relations can result in big earnings.
2. An Expanding Government Immediately Lowers the Currency Value. When a country decides to build its infrastructures by creating new groups, it needs to spend money on research and development, security consultants and the costs of business. This is money that would be allocated elsewhere in a budget, so the local currency is immediately lowered in value. However, in the long run, that currency should strengthen because a stronger infrastructure translates to more smoothly running governmental operation.
3. Solid Government Patterns Is Good For Currency Value. A recent study at MIT discusses the affects a consistent government has on foreign currency, which can be seen on the MIT News website. The basics of the Forex market are that as an investment vehicle, it is hurt by volatility unless one understands how to capitalize on such volatility. If investors feel that things are smooth in a certain country, this will likely raise the value of that local currency because that currency is a safer bet.
4. Tax Cuts Causes Consumer Spending. The local currency will be in higher demand if a government cuts taxes in efforts to encourage spending. However, investors and traders alike must be aware of these affects considering that too much spending of borrowed money translates to debt that is difficult to repay and ultimately a necessity for more currency to be created and thus inflation.
These factors should be taken into account when evaluating the international currency exchange rates because governmental activity may be at the forefront of true fundamental Forex market analysis. As seen in the US dollar, the debt is more than $9 Trillion and although the US has been notoriously good about paying back debt, the inflation caused by the Fed continually lowering the interest rates is having a serious affect on the USD.
Transfers of monies between countries are spurred by confidence in specific government policies, and this constitutes maybe the biggest chunk of global economy stimulation. Coupled with technical analysis of these charts, one can for the basis of a well-informed and thus strong trading strategy.
