Stock market and leading commodities seem to get the major limelight in the financial market buzz these days. Despite the biggest liquid trading markets across the globe, the global market for currency never gets the same kind of attention. There are some factors behind this – slighter changes in price and no central currency exchange are among a couple of them. If proper attention is given to current market trends, one can generate crucial information to plan for prospects. Here are some of the most important factors are discussed that affect the currency value of the nation.
- Economic Growth
The strong growth rate of a country boosts strengthen the nation’s currency. The growth rate is directly as well as indirectly propels the demand for services and products along with better employment prospects. More growth causes higher inflation rates and also increases the expectations for the higher interest rate. Foreign investment plays a crucial role in driving the currency of a major economy.
- Interest Rates
One of the highly-rated factors contributing to the strength or weakness of any currency is a levied interest rate in the country. For any country, the central bank is responsible for moving interest rates in the higher or lower direction. Imposing higher interest rates causes more cost fees while borrowing money. On the other side, lower interest rates do the exact opposite of it. So all in all, higher interest rates more value to the currency.
Down the line, inflation is a key economic factor that is denoted by the hike in prices of services and goods. Whenever a product or service price rises, it defines that there is an increase in the demand for the product. Generally, higher prices don’t please consumers, but it certainly points to the positive aspect of a country. The rise in inflation rates also increases the possibility that interest rates may go high. This, in turn, proves healthy for the rise of the currency.
Instability in the current administration can bring major effects on the country’s economy and also on neighboring countries several times. Changes in the present government make an impact on foreign relations which also results in changes in business relations. There are several cases where a country faces financial difficulties due to conflicts between the two countries’ governments.
- Change in Competitiveness
If a neighbor country’s services and products become more competitive then it causes exchange rates to rise higher. The competitive environment at the international level also hampers the country’s economic growth and currency value. Any economy must ensure the stability in the demand and supply of their goods ratio to lower down the chances of the instability of a country’s currency.
The above-covered factors give a clear insight into how they are responsible for affecting the currency value of the nation directly or indirectly. Managing all these factors in the right order supports the increase in the valuation of currency at local as well as global levels.