budget deficits

The fluctuations in FX rates in a floating exchange rate regime are explained by the following theories:

1. International parity conditions
2. Balance of payments model 
3. Asset market model

None of the models that has been developed so far have achieved success to explain FX rates levels and volatility in the longer time frames. The above models make us understand that the exchange rates are affected by many macroeconomic factors and in the end currency prices are a result of dual forces of demand and supply.

For any given currency Supply and demand, and thus its value, are not influenced by any single element but rather than that they are influenced by several factors. These elements are generally divided into three categories:

1. economic factors,
2. political conditions
3. market psychology

Economic factors

The economic factors include:

• economic policy, that are disseminated by government agencies and central banks,
• economic conditions, that are generally elaborated through economic reports,
• and other economic indicators.

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Tagged as: Balance of trade levels and trends, budget deficits, business cycles, capacity utilization, central banks, country's currency, Determinants of FX Rates, Economic Conditions, economic factors, Economic growth and health, economic indicators, Economic numbers, Economic Policy, economic reports, employment levels, EUR/USD, financial difficulties, Flights to Quality, floating exchange rate, fluctuations in FX rates, forces of demand and supply, foreign exchange market, forex, FX, FX Rates, GDP, government agencies, Government budget deficits or surpluses, high level of inflation, inflation, Inflation levels and trends, Long-term Trends, macroeconomic factors, market psychology, political conditions, Political instability, Price charts, Productivity of an economy, purchasing power, retail sales, Technical trading considerations, traders

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