{"id":9751,"date":"2022-10-13T04:37:06","date_gmt":"2022-10-13T04:37:06","guid":{"rendered":"https:\/\/mdr.foobrdigital.com\/?p=9751"},"modified":"2022-10-13T04:37:06","modified_gmt":"2022-10-13T04:37:06","slug":"fundamental-factors-that-affect-currency-values","status":"publish","type":"post","link":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/2022\/10\/13\/fundamental-factors-that-affect-currency-values\/","title":{"rendered":"Fundamental Factors That Affect Currency Values"},"content":{"rendered":"\n<p>There are several fundamental factors that help shape the long-term strength or weakness of the major currencies and will affect you as a forex trader.<\/p>\n\n\n\n<p>We\u2019ve included what we think are the most important for your reading pleasure:<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Economic Growth and Outlook<\/h2>\n\n\n\n<figure class=\"wp-block-image aligncenter\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2010\/12\/economic-recession.png\" alt=\"Economic Recession\" class=\"wp-image-106950\"\/><\/figure>\n\n\n\n<p>We start easy with the economy and outlook held by consumers, businesses, and governments.<\/p>\n\n\n\n<p>It\u2019s easy to understand that when consumers perceive a&nbsp;<strong>strong economy.<\/strong><\/p>\n\n\n\n<p>Consumers feel happy and safe, and they spend money. Companies willingly take this money and say, \u201cHey, we\u2019re making money! Wonderful! Now\u2026 uh, what do we do with all this money?\u201d<\/p>\n\n\n\n<p>Companies with money spend money. And all this creates some healthy tax revenue for the government.<\/p>\n\n\n\n<p>They jump on board and also start spending money. Now everybody is spending, and this tends to have a positive effect on the economy.<\/p>\n\n\n\n<p><strong><\/strong><strong>Weak economies<\/strong>, on the other hand, are usually accompanied by consumers who aren\u2019t spending, businesses who aren\u2019t making any money and aren\u2019t spending, so the government is the only one still spending. But you get the idea.<\/p>\n\n\n\n<p>Both positive and negative economic outlooks can have a direct effect on the currency markets.<\/p>\n\n\n\n<p>The most commonly used measure of economic growth is&nbsp;<strong>GDP<\/strong>.<\/p>\n\n\n\n<p>GDP\u00a0stands for \u201c<strong>Gross Domestic Product<\/strong>\u201d and represents the total monetary value of all final goods and services produced (and sold)\u00a0<em>within<\/em>\u00a0a country during a period of time (typically one year).<\/p>\n\n\n\n<p><em>GDP<\/em>&nbsp;provides an economic snapshot of a country, used to estimate the size of an economy and growth rate.<\/p>\n\n\n\n<p>Here\u2019s a visualization from&nbsp;HowMuch.net&nbsp;that shows the $86 TRILLION global economy in one chart:<\/p>\n\n\n\n<p>As you can see:<\/p>\n\n\n\n<ul><li>The United States is still the world\u2019s largest economy.<\/li><li>China is the world\u2019s second-largest economy.<\/li><li>The United States and China together make up nearly 40% of the global economic GDP.<\/li><li>The top 15 economies represent a whopping 75% of the total global GDP.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Capital Flows<\/h2>\n\n\n\n<figure class=\"wp-block-image alignright\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2010\/12\/18153441\/capital-flows1-150x150.png\" alt=\"Capital Flows\" class=\"wp-image-177295\"\/><\/figure>\n\n\n\n<p>Globalization, technological advances, and the internet have all contributed to the ease of investing your money virtually anywhere in the world, regardless of where you call home.<\/p>\n\n\n\n<p>You\u2019re only a few clicks of the mouse away (or a phone call for you folks living in the Jurassic era of the 2000s) from investing in the New York or London Stock exchange, trading the Nikkei or Hang Seng index, or from opening a forex account to trade U.S. dollars, euros, yen, and even exotic currencies.<\/p>\n\n\n\n<p><strong>Capital flows measure the amount of money flowing into and out of a country or economy because of capital investment purchasing and selling.<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2010\/12\/capital-flows.png\" alt=\"Global Capital Flows\" class=\"wp-image-106198\" title=\"Global Capital Flows\"\/><\/figure>\n\n\n\n<p>The important thing you want to keep track of is capital flow balance, which can be positive or negative.<\/p>\n\n\n\n<p>When a country has a&nbsp;<strong>positive capital flow balance<\/strong>, foreign investments coming into the country are greater than investments heading out of the country.<\/p>\n\n\n\n<p>A&nbsp;<strong>negative capital flow balance<\/strong>&nbsp;is the direct opposite. Investments leaving the country for some foreign destinations are greater than investments coming in.<\/p>\n\n\n\n<p>With more investment coming into a country, demand increases for that country\u2019s currency as foreign investors have to sell their currency in order to buy the local currency.<\/p>\n\n\n\n<p>This demand causes the currency to increase in value.<\/p>\n\n\n\n<p>Simple supply and demand.<\/p>\n\n\n\n<p>And you guessed it,&nbsp;<strong>if supply is high for a currency (or demand is weak), the currency tends to lose value<\/strong>.<\/p>\n\n\n\n<p>When foreign investments make an about-face, and domestic investors also want to switch teams and leave, and then you have an abundance of the local currency as everybody is selling and buying the currency of whatever foreign country or economy they\u2019re investing in.<\/p>\n\n\n\n<p>Foreign capital loves nothing more than a country with high interest rates and strong economic growth. If a country also has a growing domestic financial market, even better!<\/p>\n\n\n\n<p>A booming stock market, high interest rates\u2026 What\u2019s not to love?! Foreign investment comes streaming in.<\/p>\n\n\n\n<p>And again, as demand for the local currency increases so does its value.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Trade Flows and Trade Balance<\/h2>\n\n\n\n<figure class=\"wp-block-image alignright\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2010\/12\/18151930\/cargo-ship-150x150.png\" alt=\"Fundamental Factors That Affect Currency Values\" class=\"wp-image-177289\"\/><\/figure>\n\n\n\n<p><strong>International trade<\/strong>&nbsp;can be broadly distinguished between trade in goods (merchandise) and services. The bulk of international trade concerns&nbsp;<strong>physical goods<\/strong>, while services account for a much lower share.<\/p>\n\n\n\n<p>World&nbsp;trade in goods has increased dramatically over the last decade, rising from about $10 trillion in 2005 to more than&nbsp;$18.89 trillion in 2019.<\/p>\n\n\n\n<p>We\u2019re living in a global marketplace. Countries sell their own goods to countries that want them (exporting), while at the same time buying goods they want from other countries (importing).<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter\"><a href=\"https:\/\/bpcdn.co\/images\/2010\/12\/global-trade-flows.png\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2010\/12\/global-trade-flows.png\" alt=\"Global Trade Flows\" class=\"wp-image-106193\"\/><\/a><\/figure>\n\n\n\n<p>Have a look around your house. Most of the stuff (electronics, clothing, doggie toys) lying around is probably made outside of the country you live in.<\/p>\n\n\n\n<p>If you live in the United States, look at all the different countries that the U.S. trades with.<img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2010\/12\/18151237\/us-trade-flows-780x499.png\" alt=\"U.S. Trade Flows\" width=\"780\" height=\"499\" srcset=\"https:\/\/bpcdn.co\/images\/2010\/12\/18151237\/us-trade-flows-780x499.png 780w, https:\/\/bpcdn.co\/images\/2010\/12\/18151237\/us-trade-flows-768x491.png 768w, https:\/\/bpcdn.co\/images\/2010\/12\/18151237\/us-trade-flows-360x230.png 360w, https:\/\/bpcdn.co\/images\/2010\/12\/18151237\/us-trade-flows.png 935w\"><\/p>\n\n\n\n<p>Every time you buy something, you have to give up some of your hard-earned cash.<\/p>\n\n\n\n<p>Whoever you buy your widget from has to do the same thing.<\/p>\n\n\n\n<p>U.S. importers exchange money with Chinese exporters when they buy goods. And Chinese imports exchange money with European exporters when they buy goods.<\/p>\n\n\n\n<p>All this buying and selling is accompanied by the exchange of money, which in turn changes the flow of currency into and out of a country.<\/p>\n\n\n\n<p><strong>Trade balance (or balance of trade or net exports) measures the ratio of exports to imports for a given economy.<\/strong><\/p>\n\n\n\n<p>It demonstrates the demand for that country\u2019s goods and services, and ultimately its currency as well.<\/p>\n\n\n\n<p>If&nbsp;<strong>exports are higher than imports<\/strong>, a trade&nbsp;<strong>surplus<\/strong>&nbsp;exists and the trade balance is positive.<\/p>\n\n\n\n<p>If i<strong>mports are higher than exports<\/strong>, a trade&nbsp;<strong>deficit<\/strong>&nbsp;exists, and the trade balance is negative.<\/p>\n\n\n\n<p>So:<\/p>\n\n\n\n<p>Exports &gt; Imports = Trade Surplus = Positive (+) Trade Balance<\/p>\n\n\n\n<p>Imports &gt; Exports = Trade Deficit = Negative (-) Trade Balance<\/p>\n\n\n\n<p><strong>Trade deficits have the prospect of pushing a currency price down compared to other currencies.<\/strong><\/p>\n\n\n\n<p>Net importers first have to sell their currency in order to buy the currency of the foreign merchant who\u2019s selling the goods they want.<\/p>\n\n\n\n<p>When there\u2019s a trade deficit, the local currency is being sold to buy foreign goods.<\/p>\n\n\n\n<p>Because of that, the currency of a country with a trade deficit is&nbsp;<strong>less in demand<\/strong>&nbsp;compared to the currency of a country with a trade surplus.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/mdr.foobrdigital.com\/wp-content\/uploads\/2022\/10\/net-exporters-vs-importers-712x780-1.png\" alt=\"\" class=\"wp-image-9752\"\/><\/figure>\n\n\n\n<p><strong>Net exporters<\/strong>, countries that export more than they import, see their currency being bought more by countries interested in buying the exported goods.<\/p>\n\n\n\n<p><strong>Trade surpluses tend to experience currency appreciation.<\/strong><\/p>\n\n\n\n<p>It is in&nbsp;<strong>more demand<\/strong>, helping their currency to gain value.<\/p>\n\n\n\n<p>It\u2019s all due to the DEMAND for the currency.<\/p>\n\n\n\n<p>That\u2019s because when&nbsp;<strong>exporters convert the foreign currencies they earn abroad into their domestic currency<\/strong>, this tends to put&nbsp;<strong>upward pressure<\/strong>&nbsp;on the domestic currency.<\/p>\n\n\n\n<p><strong>Currencies in higher demand tend to be valued higher than those in less demand.<\/strong><\/p>\n\n\n\n<p>It\u2019s similar to pop stars. Because she\u2019s more in demand, Taylor Swift&nbsp;gets paid more than Pink. Same thing with Justin Bieber versus&nbsp;Vanilla Ice.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">The Government: Present and Future<\/h2>\n\n\n\n<figure class=\"wp-block-image alignright\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2010\/12\/18152706\/government-office-150x150.png\" alt=\"Government\" class=\"wp-image-177293\"\/><\/figure>\n\n\n\n<p>After the Great Financial Crisis (GFC) caused the&nbsp;Great Recession&nbsp;during the late 2000s, all eyes were glaringly watching their respective country\u2019s governments, wondering about the financial difficulties being faced, and hoping for some sort of fiscal responsibility that would end the woes felt in our wallets.<\/p>\n\n\n\n<p>A decade later, we now face a similar situation as the world tries to navigate a global health crisis and economic collapse caused by the coronavirus (COVID-19) pandemic.<\/p>\n\n\n\n<p><strong>Instability<\/strong>&nbsp;in the current government or changes to the current administration can have a direct bearing on that country\u2019s economy and even neighboring nations. And any impact on an economy will most likely affect exchange rates.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>There are several fundamental factors that help shape the long-term strength or weakness of the major currencies and will affect you as a forex trader. We\u2019ve included what we think are the most important for your reading pleasure: Economic Growth and Outlook We start easy with the economy and outlook held by consumers, businesses, and [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[860],"tags":[],"_links":{"self":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9751"}],"collection":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/comments?post=9751"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9751\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=9751"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=9751"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=9751"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}