Understanding Forex Trading System Through Currency Strength or Weakness
The U.S. dollar is one of the strongest currencies in the world, even though it was one of the worst hit during the economic slump. Current data places the U.S. dollar above many currencies such as the British pound, the Canadian dollar, the European euro, and the Japanese yen. The currency with the highest value, however, is the Kuwaiti dinar—owing probably to its country being oil-rich.
This monetary inequity raises interesting questions. Why do some currencies have higher value than others? Why do certain currencies with higher monetary value than another turn out to be weaker? How do you determine the real value of a currency? These bring you to the conclusion that there might be factors affecting currency movements aside from economic policy. Such are the challenges of a forex trading system that you face if you’re a new trader.
If you’re still learning the ropes, it might be good to know what a strong or weak currency means. While a strong currency is a good indicator of a country’s economy, it’s not the only indicator. For instance, a currency that is worth less than one U.S. dollar doesn’t necessarily belong to a country in shambles. One U.S. dollar is equal to 92 Japanese yen, yet Japan is an economic power in the Asia-Pacific.
On the other hand, not all countries with currencies higher than the US dollar are richer than the world superpower. One Latvian lat is currently pegged at nearly 2 US dollars, but the GDP of Latvia is only 0.19% that of the US. The Northern European republic’s currency has been performing better in recent years.
Adrian Lowery, for ThisIsMoney.co.uk, writes that various factors—such as interest rates, foreign trade, government intervention and forecasts—change along with the economy. Some economists also say that the currency’s fixed or floating rate may also affect foreign exchange. The Chinese yuan had been kept artificially weak with a fixed rate, to keep the cost of labor low and to protect its exporters. China was forced to start “floating” its currency in 2005, albeit slowly, to boost international trade.
Forex rates are among the things you need to consider when choosing a currency to trade in. Remember that political situations and economic policies contribute to a currency’s strength or weakness. Companies like Forex Malibu offer forex trading system training to help amateur traders cope.