Forex (Foreign Exchange)
Quick Answer
The global marketplace for trading national currencies against one another.
Understanding Forex
Currency Pairs Currencies trade in pairs: EUR/USD means euros quoted in US dollars. - Base currency (first) = what you're buying - Quote currency (second) = what you're paying
Major Pairs: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD
24-Hour Market: Forex trades around the clock Sunday 5 PM to Friday 5 PM ET.
What Moves Currencies
Interest Rates Higher rates attract capital, strengthening the currency.
Economic Data GDP, employment, inflation reports affect currency values.
Central Bank Policy Rate decisions and monetary policy statements drive major moves.
Risk Sentiment Safe-haven currencies (USD, JPY, CHF) strengthen in crises; risk currencies weaken.
Forex and Other Markets
Impact on Stocks A strong dollar hurts US multinationals' overseas earnings when converted back.
Commodities Most commodities are priced in dollars. Dollar strength pressures commodity prices.
Emerging Markets EM countries with dollar-denominated debt suffer when the dollar strengthens.
Cross-Asset Correlations Understanding forex helps explain moves in stocks, bonds, and commodities.