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EDUCATION: What are the Fundamental Factors that could affect the Price Movement? 



There are large numbers of Factors that mostly affect the movement of the currency pairs, but the key factors are: 

1. GDP growth. 
2. Inflation and deflation 
3. Monetary policy decision 
4. Consumer price and producer price (i.e) Ask price and Bid price. 

GDP Growth: The GDP ( Gross domestic product) is one of the primary Indicator to measure the country's Economic health. It represents the total value of all goods and service produced over the certain period of time. Usually, GDP is expressed as a comparison to the previous quarter or year. 

The changes in this number can easily change the market trend, Investors often pay attention to both positive and negative GDP growth when assessing an investment idea or coming up with an investment strategy. 

Generally, the economist use's two types of GDP to predict the countries economic health. Nominal GDP and Real GDP. 

2. INFLATION AND DEFLATION 

Inflation: Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of the currency is falling. Mostly, the central banks attempt to limit inflation — and avoid deflation — in order to keep the economy running smoothly. 

DEFLATION: In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0 %. Inflation reduces the value of currency over time, but deflation increases it. 

This allows one to buy more goods and services than before with the same amount of currency. Deflation usually happens when supply is high (when excess production occurs) when demand is low (when consumption decreases). 

3. Monetary policy decision: The process by which monetary authority of a country, typically the central bank or currency board, controls either the cost of very short-term borrowing or the monetary base, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency. 

How does it work? 

Through its monetary policy , a central bank can affect the demand in the economy, but it has no power to affect the supply. When growth falls, the central bank may reduce the repo rate. 
As this monetary signal works its way through the economy, the rates for all sorts of loans fall. This stimulates the demand and helps the economy return to its potential growth rate. Sometimes the growth rate is too high, pushing up inflation. 

4. Consumer price and producer price (i.e) Ask price and Bid price. 

The Bid and Ask prices are determined by the large banks depending on the demand and supply of the currency in question. Bank’s primary profit comes from the "Spread" which is the difference between the bid and the ask price. Noticeable changes in the numbers could change the price trend. 

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