Economic stability, growth or errors have a major impact on the value of a country’s local currency. We can’t deny it, but what are the factors that really affect the value of a currency?
Supply and demand, trade and investment, inflation and interest rates, expectations and market psychology are vital for creating or supporting a healthy economic situation. In this publication, we look at the most important factors that affect the value of the US dollar.
Supply and Demand
As other countries demand US goods, demand for dollars will continue. Whenever a consumer buys a US product, the money becomes US dollars. In other words, this consumer would have received dollars. One of those who make a profit would be the country that owns the currency – the US in its own right. This exchange is not only with the US, but also with the bonds of some other organizations.
Trade and Investment
According to many analysts, the most important dimension of the dollar is its role in trade and investment. The trade balance is the import-export ratio of a country. If exports are higher than imports, there is abundance in the country. If it is the opposite, as you can imagine, that country has trouble. If the country spends more than it earns, its money does not generate value.
Inflation and Interest
The change in inflation in the country’s local market is also reflected in the local currency. These two concepts go hand in hand. For example, in a country where inflation rates are low, prices of products produced and export to abroad increase slowly but steadily. Interest rates and inflation are also directly linked. Contrary to popular belief, if a country’s interest rates are high, the inflow of foreign currency to that country increases, so that the value of the country’s currency is assigned.
Thought and Expectations
What the world thinks about your country is important. These expectations emerge during the exchange. Therefore, foreign policies and relations are important. For example, figures are not the only thing that determines the value of a country’s currency. For example, if other countries see the US as a country with a weak and struggling economy, they will sell their bonds. This initiates a bad return process and affects trade badly. Therefore, policy is important. Financial relations and history are among the other important factors that determine the level of financial power of a country.