The foreign exchange market, as its name implies, is a market where currencies of different countries are exchanged, and the exchange rate is determined here. The foreign exchange market, like other markets, is mainly determined by two factors, one is the supply and demand of money, and the other is the price of national currencies, which is calibrated by each country's own units. Although there are so many different transactions in the foreign exchange market, the basic principles of exchange rate determination are the same. Many economists tend to use the relationship between supply and demand to explain the activities of the foreign exchange market. American economist Samuelson used the supply-demand curve to analyze the market decision of exchange rate. His example is the bilateral trade between the pound and the dollar. America's demand for pounds is due to the goods, services and investments Britain provides to America. America needs pounds to pay for these goods and services. The supply of pounds depends on the goods and services provided by the United States to Britain and the investment of the United States in Britain. The price of foreign exchange, that is, the exchange rate, is set at the point of balance between supply and demand. The balance of supply and demand of foreign exchange determines the exchange rate of currency. This supply-demand relationship of foreign exchange exists in every currency, so the supply-demand relationship comes from all directions of the world, and this multilateral exchange determines the exchange rate of the whole world.
Dollars and gold
When the dollar falls, gold rises, while when gold falls, the dollar tends to rise, and gold and the dollar are negatively correlated for most of the year. Why can the dollar affect the price of gold so strongly?
There are three main reasons for this:
First of all, the US dollar is the pillar of the current international monetary system, and the US dollar and gold are the most important reserve assets. The strength and stability of the US dollar weakened the position of gold as a reserve asset and a value-preserving function.
Second, American GDP still accounts for 1/4 of the world GDP, and the total foreign trade is the highest in the world, which deeply affects the world economy, while the price of gold is obviously inversely proportional to the quality of the world economy.
Third, the world gold market is generally priced in dollars, so the depreciation of the dollar will inevitably lead to an increase in the price of gold. For example, at the end of the 20th century, when the price of gold reached a low point, people threw out gold in succession, which was closely related to the continuous growth of American economy 100 months and the strength of the US dollar.
Dollars and oil
As the world's largest oil consumer and net importer, the rise in oil prices will undoubtedly have a negative impact on the US economy and lead to fluctuations in the real exchange rate of the US dollar. Historically, all previous oil crises have caused the recession of the American economy, which is the main reason for the fluctuation of the real exchange rate of the US dollar. However, the analysis of the real exchange rate trend of the US dollar will be different from that of the general oil importing countries. The main reason is that international oil transactions are all denominated and settled in US dollars, and the rise in oil prices means an increase in demand for US dollars, so the US dollar may remain a strong currency, which makes the analysis complicated.
Scholars' theoretical research and empirical analysis show that the fluctuation of oil price is the main factor leading to the change of the real exchange rate of the US dollar. To sum up, the sharp rise in oil prices mainly affects the nominal exchange rate of the US dollar through the following three ways, and then affects the fluctuation of the real exchange rate of the US dollar.
First of all, rising oil prices will increase the cost of means of production and living in an all-round way, leading to an increase in inflation rate, which in turn will increase the demand for nominal money and domestic credit, thus attracting more foreign investment into the United States. The inflow of foreign capital will lead to the rise of the exchange rate of the US dollar. At the same time, domestic monetary policy in the United States tends to strengthen the appreciation of the dollar. At the beginning of rising oil prices, the Federal Reserve often adopts tight monetary policies such as raising interest rates to control inflation, so that the increase in interest rates will attract more foreign capital inflows and lead to the rise of the nominal exchange rate of the US dollar.
Secondly, the rising oil price makes the oil exporting countries have a trade surplus, and the foreign exchange reserves mainly in US dollars increase, resulting in the so-called "petrodollars", which will enter the international financial market to buy a large number of US dollar assets for profit-seeking, and then lead to the rise of the nominal exchange rate of the US dollar.
Third, the continuous rise in oil prices will lead to the recession of the world economy, making the balance of payments of oil-importing countries uncertain. Therefore, these countries have increased the proportion of US dollar assets in their foreign exchange reserves to maintain the stability of the exchange rate, which further increases the demand for US dollars and leads to the rise of the nominal exchange rate of US dollars.
Under the comprehensive effect of the above three influencing mechanisms, the nominal exchange rate of the US dollar rises when the oil price rises. When the nominal exchange rate rises, the change of the real exchange rate level depends on the ratio of the domestic price level in the United States to the foreign price level. Because the oil consumption in the United States is greater than that in other countries, the impact of rising oil prices on the overall price level in the United States is greater than that in other countries. In this way, the rise of the relative price level is consistent with the change direction of the nominal effective exchange rate, so when the oil price rises, the real exchange rate level of the US dollar will also rise.
The influence of domestic political situation on exchange rate
The political risk of foreign exchange market is mainly the change of economic policy caused by political instability. From the specific form, there are general elections, wars, coups and border conflicts. Political events are usually unexpected events, which make the spot price of foreign exchange market fluctuate extremely sharply, and the fluctuation range often exceeds the long-term fluctuation range of foreign exchange prices.
1. general election: the general election of a country means the replacement of leaders, accompanied by changes in economic policies. During the general election, the changes in the election situation, that is, people's expectations of the election results, will have a certain impact on the foreign exchange market.
Second, regime change: when a country or region changes regime, it will have a great impact on economic development and an immeasurable impact on foreign exchange. For example, 1998 Russia's political instability has caused great damage to the Russian economy.
3. War or coup: When there is a coup or war in a country, its currency will be unstable and fall, and turmoil is an important reason to attack its currency. For example, 199 1 When the United States launched a "desert storm" attack on Iraq, the exchange rate of the US dollar experienced a big round of fluctuations. The "9. 1 1" terrorist attacks in the United States and the military actions taken by the United States in Afghanistan have also hit American consumers and business confidence, putting the dollar under depreciation pressure.
Social and political factors affecting the foreign exchange market are usually accidents. This short-term emergency will cause the spot price of foreign exchange to fluctuate and even deviate from the long-term equilibrium price. But afterwards, the trend of foreign exchange will change towards its long-term equilibrium price. Generally speaking, short-term price changes will only correct the direction of long-term foreign exchange equilibrium price at most, but it is difficult to change or completely reverse its long-term fluctuation trend.
The influence of economic factors on exchange rate
I. Gross national product
Gross National Product (GNP) is the total value of all final products and services produced by a country in a certain period of time, which is the most basic of all economic indicators and reflects the overall economic situation of a country. Gross national product consists of four main parts: consumption, investment, government expenditure and net export. The relationship between them is: gross national product = consumption+investment+government expenditure+(export-import).
Whether the economy of a country or region is in a growth stage or a recession stage can be observed from the change of GNP. The substantial increase in gross national product reflects that the country's economy is booming, national income is increasing, and consumption power is also increasing. The government may raise interest rates and tighten the money supply, and the attractiveness of the country's currency is also increasing, leading to an increase in its currency exchange rate; On the other hand, if a country's gross national product shows negative growth, it means that the country's production is weakening, the economy is declining, and its consumption capacity is decreasing. In this case, the government may lower interest rates to stimulate economic growth. Falling interest rates and poor economic performance in the country will also reduce the attractiveness of its currency. Under normal circumstances, if a country's gross national product falls for two consecutive quarters, it is regarded as entering a period of economic recession.
Second, inflation.
Inflation is also an important factor affecting the exchange rate. There are many economic indicators reflecting inflation, such as:
1, production price index
The production price index mainly reflects the production cost of commodities, that is, the price changes of raw materials, and is used to measure the price changes of various commodities at different production stages. This indicator has a great influence on the rise and fall of consumer prices in the future, and it is also an indicator to predict the trend of consumer prices. The relationship between producer price index and exchange rate is very subtle and capricious. If the producer price index is higher than expected, there is a possibility of inflation, and the relevant departments will implement a tight monetary policy. In this case, the exchange rate of the country's currency may rise; However, if the relevant departments have other considerations and do not tighten the monetary policy, the exchange rate of the country's currency may fall.
2. Consumer price index
Consumer price index mainly reflects the prices of goods and services paid by urban consumers. This is a tool widely used to reflect inflation, usually expressed as a percentage. When the consumer price index rises, it shows that the inflation rate rises, that is, the purchasing power of money declines. Theoretically, the currency of this country should have a downward trend, but many countries take controlling inflation as their main goal. The rising inflation rate often brings the possibility of rising interest rates, which will benefit the country's currency. If inflation is controlled, interest rates may fall, which will weaken the country's currency.
3. Retail price index
Retail price index refers to the change of market retail price, which is another indicator of a country's inflation. When a country's social economy develops vigorously and personal consumption increases, it may bring about an increase in the retail price index. The continuous rise of this index will bring inflationary pressure, make the government tighten the money supply, and the country's currency exchange rate will rise. The retail price index reflects the average change of retail commodity prices. Different from the consumer price index, the consumer price index is weighted according to the weight of different commodities in consumption, reflecting the changes in people's living expenses.
4. Wholesale price index
The wholesale price index reflects the change of wholesale price, which is basically the same as the retail price index, and the calculation method is simpler. In the absence of retail price index, wholesale price index can be used instead of analyzing inflation.
Third, interest rates.
When a country's interest rate level rises, the interest income of investors holding the country's currency increases, leading to an increase in the demand for its own currency; At the same time, short-term capital flows to China, and domestic capital outflows decrease, which leads to the improvement of the balance of payments capital account and the rise of the local currency exchange rate. On the other hand, if the interest rate of a country drops, the interest income of investors holding the currency of that country will decrease, and the demand for the currency will decrease; At the same time, short-term capital flows abroad and capital inflows decrease, which leads to the deterioration of the balance of payments capital account and the decline of the exchange rate.
Fourth, employment.
The employment situation is a barometer of a country's economic development, and the indicators reflecting the employment situation mainly include the number of employed people, the unemployment rate and the employment situation of various industries. The number of employed people is an indicator of synchronous development with the economy. The better the economic development, the more employment opportunities will be provided and the number of employed people will increase accordingly. Therefore, the increase in employment reflects the vigorous development of a country's economy, which is good for its currency exchange rate.
Verb (abbreviation of verb) personal income
Personal income includes all the total income obtained from wages, social welfare or other means. Personal income is the source of personal consumption, which reflects the actual purchasing power level of individuals and predicts the future demand of consumers for goods and services. Changes in personal income will also affect the current account and exchange rate of the balance of payments. The improvement of personal income level will lead to the increase of a country's demand for foreign products, which will lead to the increase of imports and the rise of foreign exchange rate; On the contrary, the decline of personal income level will lead to the decrease of demand for imported products and even the decline of foreign exchange rate. If the expected personal income level in the market is lower than the actual income level, the exchange rate of the country's currency will rise, while if the expected personal income level in the market is higher than the actual income level, the exchange rate of the country's currency will fall.
Intransitive verb industrial order
Industrial orders reflect a country's industrial production and sales, including durable goods orders and non-durable goods orders. This indicator reflects the quality of manufacturing production, and manufacturers of manufacturing usually arrange production after receiving orders, so this indicator is also regarded as a harbinger of the next production activities. When durable goods orders drop sharply, it reflects that the manufacturing industry is weak, and the next step of output reduction may lead to an increase in unemployment and a slowdown in economic development, which is not good for the country's currency; On the contrary, the increase in durable goods orders reflects the country's sound economic development and is beneficial to the country's currency.
Seven. Commercial inventory and sales
Commercial inventory is a kind of reserved commodity. The goods produced by the factory will not immediately enter personal consumption or production consumption through the circulation field, and some will be stored for production and sales. Therefore, maintaining and expanding the scope of reproduction and business is an important condition for industrial and commercial enterprises. The sharp increase or decrease in inventory is directly related to market conditions and economic rise and fall. In the period of rapid economic development, if the commercial inventory suddenly increases, it indicates that the economic development will be blocked and may enter stagnation or recession; In the economic downturn, if the commercial inventory suddenly decreases, it shows that the economic development is showing signs of improvement. Therefore, commercial inventory is a leading indicator of a country's economic development.
Eight. Foreign trade balance figures
Commodity trade between countries is an important part of economic activities, and countries regularly publish trade figures for a certain period. If a country often has a trade deficit, it means that the national income flows out and the national economy weakens. In order to improve this situation, the government often devalues its currency and enhances its export competitiveness. Therefore, when a country's trade deficit expands, the exchange rate of its currency will decline; On the contrary, when there is a surplus in foreign trade, the exchange rate of the country's currency has an upward trend.