Political conditions

Political conditions
Internal, regional, and international political conditions and cases can have a profound effect on currency marketplaces. For instance, political upheaval and instability can have a negative impact on a nations economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, cases in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

Economic factors

These include economic policy, disseminated by government agencies and central banks, and economic conditions, generally revealed through economic reports.
Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a governmentscentral bank influences the supply and cost of money, which is reflected by the level of interest rates).
Economic conditions include:
Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency.
Economic growth and health: Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a countrys economic growth and health. Generally, the more healthy and robust a countrys economy, the better its currency will perform, and the more demand for it there will be.
Government budget deficits or surpluses: The market ususally reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a countrys curency.
Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a countrys currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nations economy. For example, trade deficits may have a negative impact on a nations currency.