FOREX THEORY
Fundamental Factors That Affect Currency Values
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’ve 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 the governments. It’s easy to understand that when
consumers perceive a strong economy, they feel happy and safe, and they spend
money. Companies willingly take this money and say, “Hey, we’re making money!
Wonderful! Now… uh, what do we do with all this money?”
Companies with money spend money. And all this creates some
healthy tax revenue for the government. They jump on board and also start
spending money. Now everybody is spending, and this tends to have a positive
effect on the economy.
Weak economies, on the other hand, are usually accompanied
by consumers who aren’t spending, businesses who aren’t making any money and
aren’t spending, so the government is the only one still spending. But you get
the idea. Both positive and negative economic outlooks can have a direct effect
on the currency markets.
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