Dollars, Yens, Euros, and Pounds are just among the most commonly known currencies in the world. We live in a world filled with different countries and most of them have their own economy and currency, although some countries have adopted other currencies, why are some currencies more powerful or stronger than others?
The price of currencies is always relative and ever fluctuating, especially due to development of retail Forex trading. The global market works on a floating-exchange rate system. This means that the exchange rate is always “floating”; going up and down according to what happens with several factors that make it change. Given any two currencies, the one with the highest purchasing power will be more expensive than the other, meaning it appreciates against the other. For example, if the British Pound loses 1% of its purchasing power after one of these fluctuations and the American dollar loses 6% it means that the pound gains power over the dollar, meaning the former becomes more expensive than the latter.
What makes one stronger?
There are some ways to make a currency strengthen. One of them is based on supply and demand, the more there is of a certain good the cheaper it becomes and the same happens the other way around. So if a country wishes to increase the value of their currency it will need to diminish its flow and presence in the international market so that whatever amount of that currency is left becomes more prized as the supply becomes smaller.
Another way of increasing the prize of a currency is to increment the country’s home economic and productive forces. So for example a country with a manufacture-based economy such as China would have to increase its productivity in order to export more and more of its product and make the Chinese Yuan be worth more.
A strong and stable currency equals a healthy economy for a country, better incomes for the people, prosperity, stable FX rates and wealth. The riches generated can bring the possibility of easily purchasing foreign goods and give the nation a better quality of life. A weak currency, on the other hand, will make it difficult for the country to buy in an international market and even settle debts.
The New Underdogs
Here some of the currencies that have best performed in Forex market recently and have been considered by the best Forex brokers as most profitable:
- Poland’s economy has been going upward since the start of 2016. It is expected that by the end of the years it will reach its peak. The country is experiencing a rise in domestic labor and investment which combined with its low interest rate promise a prosperous 2016.
2. South Korean Won
- After becoming one of the strongest economies and a real force to be reckoned with in the Asian Pacific zone, South Koreans have seen an increment on their local currency against the American dollar after achieving to reduce their international debt and managing to decrease the printing of Wons.
3. Hungarian Forint
- Hungary now experiences a low-interest rate and a few economic issues; however, this has not stopped the forint from being a strong performer in Forex markets, and it may even see an inflow of investors from countries such as India and Russia.
4. Indonesian Rupiah
- The rupiah constantly goes through what investors call a momentum play, which happens when investors push the currency into a desired direction and make it gain strength for a period of time and what they do is ride that wave for as long as they can and then drop it as high as possible before it goes down again.
5. Indian Rupee
- The Rupee is the riskiest of them all. India has one of the world’s worst inflation rate and a very shaky monetary policy. Yet that did not stop it from outperforming almost all other currencies on the rising thanks to its high-interest rates.