Factor Effecting Forex Market

The Exchange rate of any currency can be figured out by many factors such as economic factors, political conditions, and market psychology. Models and theories have been developed to explain currency up and downs in floating exchange premises, but in a fixed exchange rate regime, rates are decided by its government. However, none of these models succeeded in explaining exchange rate and culnaribilty in longer time frames.
        

  Economic factors like economic policy by government agencies, central banks and economic conditions such as economic report and economic indicators play an important role in determining the exchange rate of a currency.

An economic policy like government fiscal policy, monetary policy and government deficit and surpluses make the market to narrow or widen due to good or bad budget deficit and has a reflection on the forex value of a currency. Economic conditions consist balance of trade levels and trends, this is the trade flow between countries and shows the demand of goods and services, which shows demand for that country's currency to make the trade. Surpluses and deficit in goods and services imply competence of that nation's economy.

Inflation level and trends, if there is a high inflation the currency value will be low because inflation decreases the purchasing power and demand for that particular currency or forex. Hence, a currency may on a hike if inflation is raising because of the expectation that the central bank will raise the short-term interest rate to restraints inflation. Economic growth and health implies that the more healthy and strong a country is the better the forex rates and performance and more demand for that country's currency or forex, these type of development  and health may be GDP, employment rate, retail sales, capacity etc. health of the economy, increased productivity should positively affect the currency value. Its effect is more imminent if the increase is in the traded sector.
        

   Political conditions like internal, regional, international political conditions and events can have a major effect on the currency markets. All exchange rate are easily influenced by political instability and anticipation by the new political party. Political unrest and instability can have a bad and negative impact on the economy of the nations or exchange rate. In a country experiencing financial problems, the rise of a political ring that is perceived to be budgetarily responsible can have an opposite effect. Also, events in one country may stimulant positive or negative interest in a neighboring country and in the process, the effect it's country.
      

   Market psychology and Forex Traders view to affect the Forex market in various ways, like Flight to quality, this is a situation whereby traders move their assets to safe haven, otherwise known as capital flight, this result in demand for stronger currencies at bigger  prices to weaker ones eg US dollar, Swiss Franc and gold are referred to as safe haven during political or economic unrest. Long-term trends.