How are currency prices determined?
Prices are formed by the major investment banking industry as they continuously provide prices to each other. Market participants access this circle of banks for their exchange needs. As the demand and offer for a specific currency changes, its price will fluctuate against other currencies and price changes occur. Depending on its liquidity and the amount of currency exchanged, large price swings can happen.
Some factors affect currencies’ prices such as economic conditions, political stability, and inflation. Governments sometimes flood the market with their currency trying to lower the price or buy their currency to raise the price; this is called Central Bank Intervention. Any of these factors with large market orders may cause prices’ volatility. However, size and volume of the Forex market enables any one entity to ‘drive’ the market for any period of time.
Currency prices (exchange rates) are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Sometimes governments influence the value of their currencies, either by flooding the market with their domestic currencies in an attempt to lower prices or buying currency to raise prices. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to drive the market for any length of time.
Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the FX market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the FX market makes it impossible for any one entity to “drive” the market for any length of time.
