Infographic: 6 Factors That Influence Exchange Rates
Connect with us

Markets

The 6 Factors That Influence Exchange Rates

Published

on

Every day, close to $5 trillion of currency gets exchanged on global markets.

It’s a market that’s running continuously for 24 hours per weekday around the world – and transactions can happen using different mechanisms, such as spot transactions, outright forwards, foreign exchange swaps, currency swaps, or the use of other types of options.

But what fuels changes in this extremely liquid and busy market, and why are the exchange rates between countries constantly in flux?

Key Market Factors

Today’s infographic comes to us from Hiwayfx and it highlights six of the major factors that can impact currency exchange rates.

6 Factors That Influence Exchange Rates

As with many things in macroeconomics, it’s important to note that many of these factors are related and can feed off each other.

For example, a high rate of inflation can lead to central bank intervention, such as raising interest rates and buying or selling domestic currency. This could lead to an increase in government debt, and so on.

What Influences Exchange Rates?

Here are the six factors summed up again:

1. Government Intervention: Central banks can influence rates by buying or selling the domestic currency.

2. Inflation: Countries with consistently high inflation rates tend to have lower currency values. This is because purchasing value decreases relative to other countries.

3. Interest Rates: A rise in interest rates in a country can offer investors a higher rate of return than other countries. As a result, the currency can appreciate relative to other countries.

4. Current Account Deficits: If a country has a current account deficit, it means that it’s spending more than it’s earning in foreign trade. To make up this deficit, countries may borrow capital from other external sources, which in turn will help make the domestic currency depreciate.

5. Government Debt: Countries with high amounts of debt are less attractive to foreign investors due to the chance of default as well as possible high inflation rates. This can decrease the currency’s value.

6. Speculation: Most trades in the forex markets are speculative trades, which means that sentiment and momentum can play big roles in market activity. Even if the fundamentals don’t align, the market for a currency can continue soaring or depreciating if traders and governments perceive it should.

For a related topic, see a map of the countries with the most foreign currency reserves.

Subscribe to Visual Capitalist
Click for Comments

Agriculture

Charted: U.S. Egg Prices More Than Double in 2022

This chart shows the increase in the national average price of a dozen Grade A eggs in the U.S. in 2022.

Published

on

This chart shows the increase in the national average price of a dozen grade-A eggs in the U.S. in 2022.

Charted: U.S. Egg Prices Double in 2022

Eggs are a staple food for many countries around the world, and the U.S. is no exception. Americans eat between 250‒280 eggs a year on average.

Eggs are also easy to cook, protein-dense and supply many daily vitamins needed for healthy living, making them a popular meal or ingredient. So when egg prices rise, people notice.

MetalytIQ charted the rapid rise of egg prices in the U.S. during 2022, using data from the U.S. Bureau of Labor and Statistics (BLS).

Eggs-asperating Prices

Over the course of 12 months, the national average price for a dozen large Grade A eggs more than doubled, to $4.25 in December from $1.93 in January.

Egg Prices Per Month (2022)Price per dozen
January$1.30
February$2.10
March$2.50
April$2.52
May$2.86
June$2.71
July$2.94
August$3.12
September$2.90
October$3.42
November$3.59
December$4.25

The biggest culprit has been an avian flu outbreak that resulted in 43 million chickens culled to prevent the spread of the disease.

This led to a severe shortfall in egg supply. Egg inventories in December had fallen by one-third compared to January. Combined with increasing demand during the holiday season, prices skyrocketed and empty shelves became apparent in some states.

This is not the first time avian flu has disrupted the industry.. In 2015, a similar outbreak pushed egg prices up 40% in nine months, reaching a high of $2.97 per dozen eggs in September 2015.

Will Egg Prices Drop in 2023?

Avian flu isn’t the only storm the egg industry has been facing in 2022.

The prices of soybean and corn—the main components of bird feed—account for half of the cost of eggs. They’ve been heavily affected by the war in Ukraine, which has driven grain prices higher.

In the near-term, egg prices are expected to remain high. Containing the avian flu outbreak will remain the biggest factor in determining the prices, but as suppliers increase production, prices may cool off a little in 2023.

Eggs and dairy make up nearly 10% of the average person’s daily calorie intake. Check out the rest of our dietary make-up in Visualizing a Rapidly Changing Global Diet.
Continue Reading

Subscribe

Popular