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Currency

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What are the major fundamental factors that affect currency movements?

Trade Balance This refers to imports and exports, and is probably the most important determinant of a currency's value. When imports are greater than exports, you have a trade deficit. When exports are greater than imports, you have a surplus. A shift in the trade balance between two countries tends to weaken the currency of the country with greater deficit
Wealth Wealth is a country's reserves, in the form of gold, cash, natural resources, and so on. Basically any factor that affects a country's ability to repay loans, finance imports, and affect investments impacts the market's perception of its currency and the currency's value.
Internal budget deficit or surplus A country running a current account deficit has, on balance, a weaker currency than one that runs a budget surplus. This is tricky, however, in that the direction of the surplus or deficit affects perceptions and currency valuations too.
Interest Rates Funds move around the world electronically in response to changes in short-term interest rates. If three-month interest rates in Germany are running 1% less than three-month rates in the United States, then all other things being equal, "hot money" flows out of Euro into the Dollar.
Inflation Inflation in each country, and inflationary expectations, affect currency values. What good is a 10% short-term return in some country if inflation is running 15%?
Political factors Taxes, stability, whatever affects the international trade of a country, or the perception of "soundness" of the currency affect its valuation.

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