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FX (2)

A change in economic conditions can cause sudden and dramatic currency price swings. This is a key concept because what drives the currency market in many cases is the anticipation of an economic condition rather than the condition itself. So, for example, the release of non-farm payroll numbers in the US can be a very important driver of where the US dollar trades, particularly if the non-farm payroll number is significantly above or below expectations.

Another example would be if interest rates are higher in the US than in other countries, then investors may choose to invest in the US, increasing demand for the dollar, provided that the economy is deemed stable and the expected rate of inflation is not higher relative the other trading countries. If interest rates are lower in the US, investors may choose not to invest elsewhere, decreasing demand for the dollar.If the US inflation rate is higher, investors are less likely to place their investment in this country