What Are Foreign Exchange Currency Rates Based On?

What are foreign exchange currency rates based on anyway? In foreign currency trading, exchange rates can fluctuate fast. Understanding what makes the rates change can help your chances as a Forex trader. Here are a few things that can impact the exchange rates between two currencies.


Inflation is one of the biggest factors that impacts foreign currency trading. When inflation is high, the value of a currency will essentially be worth less against other currencies. The Consumer Price Index is used to determine the level of inflation by comparing the prices of products against their historical price information.

foreign exchange currency rates

Interest Rates

Another factor that can influence foreign exchange currency rates between two currencies is the prevailing interest rates in the two countries. When interest rates are higher, investors start to flock to that particular currency. This raises the value of the currency against the other.

Gross Domestic Product

When calculating the exchange rate between two currencies, the gross domestic product also plays a role. The gross domestic product is essentially a way to measure the strength of the economy. If the gross domestic product of one country is higher than the other, it helps swing the exchange rate in that currency's favor.

Just keep in mind that the GDP is not the only factor in determining the strength of a currency. For example, the United States GDP is much bigger than many countries, but the Dollar is not always the strongest currency when compared to these economies.

Non-Farm Payroll

Non-farm payroll is another piece of economic info that really impacts the market. So what does the term non-farm payroll really tell you? Well, as the name suggests, it tells you the amount of payroll that a country has that is not related to the farm. It also includes some other industries that are not farming related, but you get the basic idea. When the non-farm payroll is high, it's a good thing for the economy.

Housing Data

The exchange rate is all about determining which economy is stronger than the other and by how much. One of the factors that plays into this calculation is housing data. For example, the number of houses sold, pending for sale and being constructed all factor into this equation. When housing slumps, the economy tends to slump as well.

Retail Sales

Another big factor in the economy is the amount of money spent on retail sales. When the retail industry does well, it points to a stronger economy. By comparison, when the economy slumps, retail sales tend to do the same.

How it Impacts You

When you get involved in the Forex exchange, all of these factors can impact you. You should try to pay attention to all of these factors by looking at resources like Forex Factory. While you also need to stick to your trading strategy and technical indicators, these factors play a big role in fundamental analysis.

If you're looking for information about the rates that brokers have, here's a good resource I've found.

Forex Broker Ratings and Reviews – Financial Market Trusted Brokers, Top Forex Affiliate programs and other common Forex-related materials.

Return From Foreign Exchange Currency Rates to Forex Market News

Return From Foreign Exchange Currency Rates to Forex Trading

New! Comments

Have your say about what you just read! Leave me a comment in the box below.



Top Rated Free Forex Indicator...

You May Also
Be Interested In

Subscribe to Forex Trading Rookie Roundup! Enter your E-mail Address
Enter your First Name (optional)

Don't worry — your e-mail address is totally secure.
I promise to use it only to send you Forex Trading Rookie.

Custom Site Search

Custom Search