Many factors affect the exchange rate between two currencies, the 3 most important ones are discussed here!!

With the rapid increase in globalization connecting different parts of the world the globe is getting smaller and smaller day by day. Gone are the times when the economy sustained itself by restricting trade within its boundaries. The picture of imports and exports is constantly jutting out. This makes the concept of “exchange rate” even more important.

Exchange rate between two currencies determines how much a country is required to pay for imported goods and also how much it is required to receive for the exports. Suppose you are a citizen of USA, and say the demand for US dollar due to an economic boom increases than its supply, the value of dollar rises and when the supply is more than the demand the value of dollar falls.

If the two countries heavily trade with each other, then the general notion of “exchange rate” plays a vital role.

The factor of demand and supply is really a crucial one because these economic parameters further depend on many factors like the interest rates, inflation etc.

If the interest rate in USA say is higher than in other countries people will prefer to invest more in the US owing to higher rate of return on their assets. This increases the demand for dollar. Similarly, if the interest rate is lower in USA as compared to other countries investment will be low, thereby decreasing the supply of dollars and thus, its value.

What if the high interest rate is accompanied by high inflation rate??

In this case the investors will not prefer investing in USA considering that the value of the dollar can be eroded any time due to higher inflation rates.

Thus, the above are the 3 most critical factors affecting the exchange rate between two currencies.

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Since Thursday Swiss franc is low against euro. On the forex trade on Thursday the Swiss franc fell against euro and the reports concluded that this state will prevail and the debt crisis for the Greece will be soon resolved. Swiss franc had its all time record of being at 1.1946 however at the Thursday trade close at regarding the New York forex trade, the Swiss franc was at 1.2033 per euro.

Investors has dragged the Swiss to the safe zone of investing over the risk area values but on Thursday the Swiss national bank (SNB) announced about the strength that it is being going through however investors ignored them from accepting, this reason has caused the Swiss franc to be low against euro and dollar.

Regarding dollar, the Swiss franc is currently 0.8499 per dollar. Swiss national bank has taken some advantage over Swiss franc when the value graph shows some kind of inflation and deflation risk in it. SNB (Swiss national bank) has been intervened between the forex and the franc in the periods of March 2009 to the extension of June 2010.

The unbalance and uncertainty of the European peripherals has supported the downside risk between the ranges of euro and Swiss franc. Their support has brought them to high level up to 1.1930 and 1.1850 regarding euro and franc respectively, said by analyst in one of his research note and he is named Marcus Hettinger.

The quarter monetary policy assets have been warned by the Swiss National Bank (SNB) on that Thursday. Nevertheless the Swiss franc was strong enough at its margin level of its Swiss exporters and during this the Swiss national bank also reported that they are planning to sell off the Swiss franc to boost its rise. Euro zone extended emergency loans from finance minister.

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Values of Euro have risen against the dollar in Asian trade believing that it would help in reconstructing the deal with the German leader. From $1.3488 it has stretched to $1.3526 in the trading market. The currency value of yen has been raised from 112.97 to 113.27 in the nights of Tuesday.

The dollar traded value in the means of yen has been little high in one point range. Their value has reached 83.93 yen from 83.74 yen. Yuzo Sakai, manager of FX business promotion situated at Tokyo Forex said the concern with the westLB has disturbed the euro in past few days.

Sakai also added that their deal with German has made the people and other investors to ease at their currency buying. The sales in the month of January of the greenback has been little lower as the major parts of the country has experienced the snow storms. However, there unit range at market seems to persist.

The euro can be reconstructed and reconstructed back to their original form as it was previously before the deadline of the deal. The government bank has planned to prepare a balance sheet and list the assets where their plan has been under pressure. This work is been planned to be done before 2015.

Approximately one third of these plans will be withdrawn. The rise in the currency is not so sustained and it is likely to be changed and however, the profit is now obtained by the reversal process of the currency from the westLB.

Recovery process has been at jet speed. Over 17 national economies are primarily in need to form the euro club and so they have been involved in the recovery process. The Korean currency is now at 1121.10 from 1119.50. Among various currencies in Asia, US dollar is found to be softer among them all.

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The Brazilian real continued to be influenced by bearish equities and commodities markets and did not manage to pare gains after falling during the most of the time last week.

Brazil is one of the main metallic commodity exporters in the world, and uncertainty brought by U.S. and Chinese statements regarding new financial regulations for loans in both countries still impacted market sentiment today, decreasing demand for raw materials and riskier assets globally, forcing the real to trade near the lowest price in 2010 reached last Friday.

USD/BRL closed today at 1.8240 from an opening rate of 1.8155.

If you want to comment on the Brazilian real’s recent action or have any questions regarding this currency, please, feel free to reply below.

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The dollar gained today versus most of the 16 main traded currencies as China tightened its lending restrictions, raising risk aversion in

foreign-exchange markets affecting high-yielding currencies the most, as investors search for safer bets.

The U.S. currency continue yesterday’s advance as risk aversion coming from Asia is still playing a major role in market sentiment this week, and the safety provided by assets in the country became one of the best options for these turbulent trading sessions. The euro was one of the biggest losers versus the dollar touching the lowest rate in 2010 today after International Monetary Fund officials affirmed that Greece’s situation is serious, once again making the Southern European nation to affect the outlook for the bloc’s single currency. The New Zealand dollar declined as a report in the nation showed that consumer prices dropped in the country, surprising analysts.

Chinese’s new policy regarding loans to avoid a new credit bubble is decreasing risk appetite, and events in Europe aren’t good either, this is allowing the dollar to outperform most of its trading partners currencies, as the U.S. provided relatively good data today, as analysts affirmed.

EUR/USD bottomed at 1.4095 as of 17:17 GMT from a previous rate of 1.4272 yesterday. NZD/USD traded at 0.7190 from 0.7387.

If you want to comment on the U.S. dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

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Demand for safety rose today as concerns among investors that Chinese lending limits announced this week by the nation’s government may impact the global economic performance, allowing the yen to beat all of the main traded currencies in

foreign-exchange markets today.

The yen gained today versus greenback as reports in the world’s wealthiest country came slightly below forecasts, also showing a slow down in the inflation. The euro declined sharply versus the Japanese currency as concerns regarding Greek’s budget deficit are still affecting the outlook for the European currency, causing an outflow of capital towards the safety provided by yen-priced assets. China’s lending restrictions will affect not only the Asian economic region, but the economy in a global scale, as Chinese trading is well spread around the world, and these measures can slow down the economic recovery expected for 2010.

Traders became more risk averse with the new Chinese banking policy, and that’s positive for the yen, according to specialists. The yen had been trading at record lows versus commodity related currencies like the Canadian dollar and the side effects of Chinese statements gave a breather for the Japanese currency.

EUR/JPY traded at 130.57 as of 16:01 GMT from an intraday rate of 131.85. AUD/JPY declined to 83.83 from 84.80

If you want to comment on the Japanese yen’s recent action or have any questions regarding this currency, please, feel free to reply below.

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The Japanese currency declined in the beginning of this Thursday’s session on Australia’s better than expected employment data, which increased attractiveness for riskier assets as the South Pacific economy recovery improves confidence among traders.

The yen, known as the best refuge currency for times of uncertainty, declined today as unemployment surprisingly fell in Australia, bringing Japanese investors to buy riskier assets overseas, as the Australian economic recovery indicates better economic conditions not only in the South Pacific region but also among its main trading partners.

AUD/JPY traded at 85.01 as of 02:35 GMT from a previous rate of 83.89 in the intraday chart.

If you want to comment on the Japanese yen’s recent action or have any questions regarding this currency, please, feel free to reply below.

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The Australian dollar climbed after employment figures were published in the country with

better-than-expected numbers, adding confidence that the economic recovery in the country is accelerating its pace, spurring demand for assets in the South Pacific region.

After unemployment in Australia declined to 5.5 percent and surprised forecasts that expected an increase, the Aussie dollar gained versus most of the main traded currencies, specially lower-yielding options like the Japanese yen, impacted by the growing risk appetite in Australia.

AUD/CAD traded at 0.9579 as of 02:27 GMT from 0.9504 hours before the employment figures were published in Australia.

If you want to comment on the Australian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

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After several days gaining versus the dollar and the euro, the Norwegian currency slid versus main traded currencies as a bearish day in equities markets and decreased demand for commodities shunned investors from assets in the Nordic country.

The Norwegian krone was affected today as the crude oil, the nation’s chief export, had a decline on its rates after China imposed new lending requirements for banks in the country, affecting markets’ sentiment, consequently impacting stock markets and demand for high-yielding currencies.

USD/NOK traded at 5.6518 as of 19:08 GMT from today’s opening rate of 5.6174.

If you want to comment on the Norwegian krone’s recent action or have any questions regarding this currency, please, feel free to reply below.

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The Chilean peso outperformed most of the main traded currencies as a copper price rally boosted appeal for assets in Chile, which declined this Friday after the metallic commodities failed to extend their gains.

The Chilean currency had a very positive performance apart from this Friday’s slide, as the economy showed signs of improvement according to the nation’s central bank, and the copper, responsible for one quarter of Chilean exports, had an increase on its rates and demand grows globally. In the last day of this week’s session, the copper retreated bringing the peso down as well.

USD/CLP closed this week at 493.95 after trading as low as 490.95 this Friday.

If you want to comment on the Chilean peso’s recent action or have any questions regarding this currency, please, feel free to reply below.

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The Polish currency advanced today in

foreign-exchange markets as Pimco speculates that 2010 will allow several emerging markets to outperform other investments, favoring the zloty in this Friday’s trading session.

The zloty benefited from statements coming from the largest bond fund in the world, Pacific Investment Management Co., which predicted better returns in 2010 for zloty-priced assets, as well as investments in Mexico and South Korea, helping their currencies to rally as well.

EUR/PLN declined in the week comparison despite 4 days of consecutive gains before this Friday when it closed at 4.0688.

If you want to comment on the Polish zloty’s recent action or have any questions regarding this currency, please, feel free to reply below.

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Better-than-expected GDP figures in the US caused risk appetite to surge across the board enabling the kiwi to post gains of over a cent against the pound.

• The solid GDP figure in the US renewed optimism about recovery in the global economy, prompting investors to buy higher-yielding currencies.
• The kiwi, which has suffered recently on a rise in risk aversion, was able to reverse losses as the positive data encouraged investors to buy up riskier assets.
• However, in trading this morning, the pound is recouping losses, pushing the price back near 2.27 as market participants return their thoughts to the RBNZ’s rate statement on Wednesday where they indicated that interest rates would not be raised for some time.

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The aussie dollar reversed recent losses yesterday after positive US GDP data encouraged investors to buy-back into perceived riskier currencies.

• The aussie pulled back nearly two cents, or 1.0%, bringing the sterling/aussie pair back down to trade around 1.80 as the data spurred demand for risk.
• Investors have been cashing profits in the Australian currency recently as global equities took a downturn, but yesterday’s figure saw traders revive long positions in the aussie.
• Analysts noted that the figures were a near-perfect combination for riskier assets: strong enough to encourage those with an optimistic outlook on the financial markets, but not too strong to generate expectations of accelerated monetary tightening from the Federal Reserve.
• In trading this morning, the pound has halted its fall and is currently trading up around 0.2% with price hovering above 1.8100.

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Sterling extended its rally, briefly climbing above $1.66 as the dollar sold off broadly after strong economic growth data spurred demand for riskier assets.

• In early trading, the pound found support from data that showed UK mortgage approvals for September increased to their highest level since February last year, exceeding market forecasts.
• Risk appetite was buoyed further in the afternoon after a report showed the US economy returned to growth in the third quarter, boosting stocks and reducing the appeal of the relative safety of the greenback.
• The US economy in the third quarter grew by 3.5% on an annualised basis, beating market expectations of a 3.3% rise and easing recently voiced concerns over the strength of the US recovery.
• Analysts noted that with the US GDP figure meeting market expectations, market players returned to using the dollar to fund carry trades, driving the US currency lower.
• The gains of 1.0% helped propel sterling toward its first monthly advance versus the dollar since July.
• However, gains were capped as the Labor Department revealed that unemployment claims inched lower in the week to 530K but missed forecasts of a drop to 520K.

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The single currency slipped further away from recent 14-month highs against the dollar yesterday, losing nearly a cent to close down at 1.4707.

• The US dollar rose, stretching a rally against the euro to a fourth day, supported by weak U.S. economic data that weighed on equity markets and led investors to seek safety in the greenback and cut exposure to assets perceived as risky.
• Initially though, the euro pared early losses after data showed core US durable goods orders were better-than-expected in September.
• The report revealed that the core figure, which excludes transport equipment, rose by 0.9%, higher than forecasts of a 0.6% rise, strengthening risk appetite in the market.
• However, in the afternoon the euro extended losses after further data showed that US home sales unexpectedly fell, declining 3.6% last month to an annual rate of 402,000, disappointing market forecasts that expected a 2.6% rise.
• Analysts noted that the soft housing sales figure offset positive durable goods orders, given that the latter data is generally volatile and sometimes does not represent the whole economic story.
• In trading today, investors will be eagerly awaiting US 3rd quarter GDP data, released at 12:30.

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The pound made up further ground on the kiwi dollar, gaining 0.65% after positive sales data supported evidence that the UK economy is still on the road to recovery.

• The sales data, which came in above market forecasts, encouraged investors to buy back into the UK currency, with the price briefly reaching above 2.20.
• Conversely, selling pressure remained on the New Zealand dollar after the nation’s Prime Minister expressed concern over the currency’s strength, and stated that there were few tools with which to deal with it.
• Higher-yielding currencies were also under pressure overnight as Asian equities turned negative, with Nikkei 225 losing over a percent, dulling demand for “riskier” assets.
• In trading this morning the pound has continued to rally, rising to a three-week high over 2.22 as a New Zealand business confidence survey unexpectedly undershot forecasts, weakening the possibility of a hawkish RBNZ rate statement to be made this evening at 20:00.

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The pound was broadly sold on Friday following a weak GDP figure, losing three cents to the kiwi dollar, to close back down at 2.1607.

• Data revealed that Britain’s economy has now shrunk for six quarters after it contracted by 0.4% in the most recent quarter, the longest period of contraction since records began in 1955.
• Analysts have now renewed their discussion over the possibility of the Bank of England retaining, or even extending, its £175 billion QE programme, which would compound sterling’s weakness.
• The news also confirmed that the BoE are likely to keep the benchmark interest rate at a record low of 0.5% firmly into 2010, lessening the appeal of sterling assets.
• In response, the markets took the kiwi nearer its multi-year highs hit earlier this month, and this trend has continued in trading this morning as investors continue to take their lead from Friday’s data.

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Sterling climbed over a cent and a half against the kiwi in trading yesterday as the market briefly turned bearish on higher-yielding currencies.

• The pound reversed losses incurred on Monday, but closed the day some way from its intra-day high of 2.2000 as investors held back from taking significant positions ahead of the UK MPC minutes released today.
• The kiwi dollar, which has broadly risen as the global economy shows increasing signs of recovery, fell back as demand for “riskier” assets stumbled following some weak economic data from the US economy.
• The US Producer Price Index revealed an unexpected monthly drop of 0.6%, with forecasts predicting a rise of 0.1%. Housing starts also disappointed market expectations, resurfacing concerns over the pace of US economic recovery.
• In response, global equities also halted their recent rally, which spurred a pull back from higher-yielding currencies, allowing the pound to gain.
• In trading this morning, the pound is broadly rising, sustained by the minutes from the latest UK MPC minutes, which revealed that a unanimous decision to keep QE on hold.

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