Ever wondered why currency prices rise and fall? The forex market isn’t just moving randomly-it reacts to real-world events, economic trends, and trader sentiment.

Understanding these factors can help you make smarter trading decisions.

What moves the Forex market?

Economic indicators: The market’s health report

Think of economic indicators as a country’s financial check-up. Some key stats traders watch:

• GDP Growth Rate: A strong economy often leads to a stronger currency.
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• Employment Figures: More jobs usually mean a healthier economy and a rising currency.
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• Inflation Rate: High inflation can weaken a currency if wages and economic growth don’t keep up.

Interest rates: The magnet for money

Interest rates are like a currency’s "attractiveness factor." Higher interest rates can draw in investors looking for better returns, strengthening a currency. Lower rates, on the other hand, can make a currency less appealing.

Geopolitical events: The wild card

Politics can shake up forex markets in unpredictable ways. Elections, wars, and policy changes can create uncertainty, leading to rapid price swings. Remember Brexit? That was a prime example of politics influencing currency values.

Market sentiment: The power of the crowd

Sometimes, currencies move simply because traders think they will. If enough people believe a currency will strengthen, they start buying, and their actions actually push the price up-a self-fulfilling prophecy. Keeping an eye on news, analyst reports, and even social media chatter can help you gauge market sentiment.

Trade balances: The export-import game

Countries that export more than they import tend to have stronger currencies because foreign buyers need their currency to pay for goods. A country with a trade deficit (importing more than it exports) may see its currency weaken.

Unexpected events: Natural disasters & pandemics

Natural disasters, global crises, and pandemics can disrupt economies and send shockwaves through forex markets. The COVID-19 pandemic, for example, caused extreme volatility as investors scrambled to adjust to a new economic reality.

Stay ahead by keeping an eye on these factors and learning more in Deriv Academy’s free courses. The more you understand what makes forex tick, the better prepared you’ll be to trade with confidence!