What are the influential factors in the exchange rate?by Kirk Jennifer Manager
It is a fact that exchange rates change consistently. But most of the people wonder what are the factors that pull the market back and push forward. Have a look at some of the top influential factors in the currency exchange UK rate.
- Purchasing managers index: The purchasing manager index are the outcomes of monthly surveys of some of the major business executives based on various important areas like the inventory levels, production, staffing, supplier and new orders. All the answers to these when collected together gives a complete view of economic health. It is shown by a number between 0 and 100. When it is between 0-49 the economy is shrinking and when it is between 51-100 market is growing. The number 50 means no growth. There are varied PMs for different countries and sectors. The two big sectors that affect the pound sterling are construction and services PMIs. Negative PMIs cause the exchange rate to go down and positive PMIs makes the exchange rate to go up.
- Payment balance: It is one of the important factors that affect the currency exchange UK. It is a little more extended than PMIs. It is the differences that exist between the payments that are coming in and balance that is going out. For example, the UK has a deficiency, the imports are more worthy than the exports, for which it has a negative payment balance. It is sending more money than receiving. But how it affects the exchange rate? It is because more sterling is sold out than bought. In the market there is less demand for sterling and high demand for euro, for example, thus pound value decreases.
- The rate of interest: The interest rate is always decided by the central bank. You can often see in news headlines and they are one of the important factors in the rate of currency exchange UK. But the question is how it affects the exchange rates? When the interest rate is increased, they are holding more dollars as profitable. For which people will buy more USD- thereby causing its value to rise. On the other hand, when interest rates decrease, dollar value decreases. This causes the exchange rates to go up or down.
- Inflation: It is the rate by which the cost level of services as well as goods increases or decreases. When a country or the currency zone faces high inflation then there is a drop in the exchange rates of the currency. It is because the price of the goods and the services becomes very less competitive. This impacts the exchange rates.
- Non-farm payrolls and earnings: The indices of the average earnings analyze the lay level across the country economy, displaying whether they are increasing or decreasing. They are analysed very closely as against the predicted figures. If the real figure is less than it can affect the investors' confidence. This causes the depreciation of the money exchange UK. On the other hand, if it comes above expectations, then the currency value increases.
No factors indeed function in a vacuum, for which all of this push and tug of all currencies happens. There may be some downward pressure that comes from high inflation and up to pressure from sturdy data earnings. This is the reason nobody can predict what will happen. So, if you are going to make any major purchase from an outside country or you are dealing with some regular transfer of money from one currency to other, then you are required to protect yourself from all risks involved.
Created on Aug 27th 2019 04:56. Viewed 188 times.
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