A Weaker Currency May Help A Country

It is common that a weaker currency may help a country’s economic health at times.

Lets compare Country A and Country B.

Country A has a weaker currency compared to Country B. If you are living in Country A, you will likely find consumer goods in Country B expensive and not be as ready to buy. Now if you are living in Country B, you will probably find consumer goods cheaper than of those in your country. Buying these consumer goods will stretch your money and hence why not?

country with weaker currency

In reality, consumers and businesses pretty much work this way.

Hence we can say that the country with the weaker currency probably attracts more investments and exports versus the country with the stronger currency. With the increase in investments and exports, businesses will benefit in the country. The businesses expand and jobs are created. Unemployment rates fall and sentiments becomes positive. As more people become employed in the country, consumer spending increases and spurs more business expansion due to increased retail sales. This may be one of the reasons why central banks often keep interest rates low when facing a challenging economic situation.

Knowledge of fundamentals is important in forex trading. While short term price action are usually sentimental in nature, fundamentals usually hold up over a longer period of time.

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