What factors influence a currency's strength?

[marvelharvey]

In the past 24 hours, the US stock market crashes by almost 10%, the FTSE goes up by 2%, yet today, Sterling somehow dropped faster than I can ever remember. What causes currency fluctuations like this? While not directly linked, I would have thought that a country's investment market would have more impact on its own currency than what I've witnessed today.

Chaps, please help a confused brain.

[SirTainly]

Demand for a currency affects its strength just like any other item with a finite supply.

If people want dollars then the price of buying dollars rises.

Edited by SirTainly on Tuesday 30th September 15:55

[limpsfield]

It dropped much more than this yesterday...

the short answer is everything - interest rates, economic outlook, inflation and the all important sentiment

[marvelharvey]

limpsfield said:

It dropped much more than this yesterday...

Maybe my desktop widget is 24 hours behind, that may explain why sometimes booms/busts don't quite match up on the graphs.

[Welshbeef]

Current Interest rates, possible/expected future interest rates, inflation/possible/expected inflation, Gold Reserves, economic outlook.

One very good bit of analysis is the McDonalds exchange rate - its the price of a Bbig Mac.

Clearly in the long run the demand eases/grows and they go back to parity. Purchasing Price Parity IIRC from Economics.

[V8mate]

Welshbeef said:

Current Interest rates, possible/expected future interest rates, inflation/possible/expected inflation, Gold Reserves, economic outlook.

One very good bit of analysis is the McDonalds exchange rate - its the price of a Bbig Mac.

Clearly in the long run the demand eases/grows and they go back to parity. Purchasing Price Parity IIRC from Economics.

I don't think you've got your terminology right there, mate.
I think the content of a Big Mac is called a 'patty', not 'parity'

[tricky69]

currency markets are funny things... there is so much that can influence it that it is very hard to pin point which factors will...

In this case most people believe that the US is further along in it's exposure to toxic assets... EURUSD fell so much because as france and belgium have organized a state backed rescue of Dexia ( just 2 days after fortis was rescued). It is also widely believed that the bailout will go through.... but Europe and UK are behind the US in sorting the problem out, Europe has only just started to feel the squeeze....

But i was surprised the USD held up so well to the bailout to be honest, a lot feel that europe and UK are in deeper problems than the US....

[thehawk]

tricky69 said:

But i was surprised the USD held up so well to the bailout to be honest, a lot feel that europe and UK are in deeper problems than the US....

The USD is a safe haven. Old world theory had gold, new world it's the USD.

[tricky69]

thehawk said:

tricky69 said:

But i was surprised the USD held up so well to the bailout to be honest, a lot feel that europe and UK are in deeper problems than the US....

The USD is a safe haven. Old world theory had gold, new world it's the USD.

Safe haven is stretching it somewhat... don't forget it was not that long ago it was up over 2.0, and with all these extra $$$ being thrown into the market ( excluding any bailout) it has to devalue the currency, just under estimated how bad it is in europe really.... Europe with Fortis and Dexia are at the US bear stearns stage ??

[Fittster]

thehawk said:

tricky69 said:

But i was surprised the USD held up so well to the bailout to be honest, a lot feel that europe and UK are in deeper problems than the US....

The USD is a safe haven. Old world theory had gold, new world it's the USD.

Hmm, governments can print money but they can't make gold. I very much doubt a fiat currency is a long term safe haven.

[thehawk]

Fittster said:

thehawk said:

tricky69 said:

But i was surprised the USD held up so well to the bailout to be honest, a lot feel that europe and UK are in deeper problems than the US....

The USD is a safe haven. Old world theory had gold, new world it's the USD.

Hmm, governments can print money but they can't make gold. I very much doubt a fiat currency is a long term safe haven.

In volatile markets the USD often gains strength through safe haven buying.

[tricky69]

thehawk said:

Fittster said:

thehawk said:

tricky69 said:

But i was surprised the USD held up so well to the bailout to be honest, a lot feel that europe and UK are in deeper problems than the US....

The USD is a safe haven. Old world theory had gold, new world it's the USD.

Hmm, governments can print money but they can't make gold. I very much doubt a fiat currency is a long term safe haven.

In volatile markets the USD often gains strength through safe haven buying.

Afraid thats a rather outdated look these days, currency markets are different animals these days and it far too risky to be considered a safe haven... the moves today are caused by other factors

[thehawk]

tricky69 said:

thehawk said:

Fittster said:

thehawk said:

tricky69 said:

But i was surprised the USD held up so well to the bailout to be honest, a lot feel that europe and UK are in deeper problems than the US....

The USD is a safe haven. Old world theory had gold, new world it's the USD.

Hmm, governments can print money but they can't make gold. I very much doubt a fiat currency is a long term safe haven.

In volatile markets the USD often gains strength through safe haven buying.

Afraid thats a rather outdated look these days, currency markets are different animals these days and it far too risky to be considered a safe haven... the moves today are caused by other factors

Sorry, I'm correct.

http://www.marketwatch.com/news/story/dollar-surge...

[tricky69]

thehawk said:

tricky69 said:

thehawk said:

Fittster said:

thehawk said:

tricky69 said:

But i was surprised the USD held up so well to the bailout to be honest, a lot feel that europe and UK are in deeper problems than the US....

The USD is a safe haven. Old world theory had gold, new world it's the USD.

Hmm, governments can print money but they can't make gold. I very much doubt a fiat currency is a long term safe haven.

In volatile markets the USD often gains strength through safe haven buying.

Afraid thats a rather outdated look these days, currency markets are different animals these days and it far too risky to be considered a safe haven... the moves today are caused by other factors

Sorry, I'm correct.

http://www.marketwatch.com/news/story/dollar-surge...

Did you actually read that artical ?? Obviously not

No that artical just says exactly what i have been saying ?! nowhere does it say the USD is a safe haven !?

[tricky69]

tricky69 said:

thehawk said:

tricky69 said:

thehawk said:

Fittster said:

thehawk said:

tricky69 said:

But i was surprised the USD held up so well to the bailout to be honest, a lot feel that europe and UK are in deeper problems than the US....

The USD is a safe haven. Old world theory had gold, new world it's the USD.

Hmm, governments can print money but they can't make gold. I very much doubt a fiat currency is a long term safe haven.

In volatile markets the USD often gains strength through safe haven buying.

Afraid thats a rather outdated look these days, currency markets are different animals these days and it far too risky to be considered a safe haven... the moves today are caused by other factors

Sorry, I'm correct.

http://www.marketwatch.com/news/story/dollar-surge...

Did you actually read that artical ?? Obviously not

No that artical just says exactly what i have been saying ?! nowhere does it say the USD is a safe haven !?

I don't mean to be rude mate, but some thing that is as vol intesive as FX can't be considered a safe havens... least of all it times like these !

the FX market is complex and to try and simplify it down to something like that is a very nieve approach.... so sorry, but your own articale(if you had bothered to read it ) says you are wrong