Foreign Exchange Market Hits New Highs: What’s Driving the Surge?

The forex market is one of the leading modes of trading known for its liquidity, accessibility, and extensive trading volumes. In 2022, the global foreign exchange market was valued at 753.2 Billion USD. On the other hand, the expected growth rate was projected at 7% within the span of 2023-2028. This certainly indicates a surge. 

Now, there are several reasons behind the new highs of foreign exchange. This includes the feasibility and transparency of the forex market along with the round-the-clock opportunities and low cost. So, if you are curious to know more about the same, here’s a brief: 

Consistent Economic Growth

When it comes to the surges in the forex market, economic growth is important to consider. That’s because a country’s economy plays an integral role in interpreting the exchange rate. If a country has high economic growth, it can certainly increase or boost the market value of the currency rate and vice versa. This eventually plays a significant role in the overall forex trading. High economic growth is also related to higher volatility and high return potential, contributing to a better foreign exchange market.  

Reduced Inflation Concerns

As a trader, you must know what high inflation can do to the currency. Usually, when inflation is high, the currency gets weaker and eventually vanquishes investment. This impacts the exchange rates negatively and ruins the trading market. However, if the inflation concerns are reduced, one can expect the opposite from the same. This means a stronger currency and better exchange rate, resulting in a good trading market. 

As the inflation times are diminishing, with the US inflation finally hitting a two-year low in June, it’s having a positive impact on the forex market. 

Interest Rate Cycle

A country’s interest rate, which is one of the surge driving factors in trading, has a direct influence on the country’s currency’s strength. This means if the interest rate of the country is more, the strength of that currency is likely to be more too, and if it’s not, the currency strength may weaken. In May 2023, the US interest rates raised to the highest levels in 16 years as it struggled to stabilize the prices. Also, the economy added the fewest jobs in two and half years, which is likely to raise the interest rates later this month. This probably imposed a positive effect on the currency and the exchange rate, resulting in good overall new highs. 

What Factors Affect Forex Market?

There are numerous effective factors that have a direct influence/effect on the forex market:

Political Party Performance – Elections often cause political instability that can eventually result in market volatility and changes in currency values. That’s why, if there are any highs and lows in the market, traders often conduct surveys and research on political instabilities. 

Conflicts and Events – Geopolitical conflicts can also have a direct influence on the economic growth of the country. This eventually results in currency fluctuations in the forex market, resulting in highs/lows. Additionally, the market can be influenced by wars, viral hazards like pandemics, and other political factors. 

Debts of the country – If a country is known for taking consistent debts from other countries, it may directly influence the currency. Put simply, the currency value is likely to decrease. Another reason how the debts discourage currency value is the fact that debt indicates low productivity activity. Traders are less likely to try out the currencies of those countries.

Capital Market: The capital market of a country is a direct indicator of the investments and inflows that the country has. An increased capital market means that the traders are interested in the assets, contributing to its economic growth. A good capital market also denotes increased confidence of the traders in the country’s economy, resulting in a decent market and an increased currency value. 

To get more knowledge about the driving factors of the forex market, it’s recommended to consult trusted forex brokers for copy trading. Not only will these qualified and proficient brokers familiarise you with the efficacious trading trends, but they will also help you with fruitful forex trading in the upcoming future. 

That’s it. From the above guide, you must know about the critical factors/aspects that have been exclusively responsible for hitting the foreign exchange market’s highs.