How Are Currency Prices Determined?
Currency prices are affected by a large matrix of constantly changing economic and political conditions, but probably the most important are interest rates, government intervention, economic conditions, international trade, inflation or deflation, political stability, and in some cases, armed conflict. Governments sometimes actually participate in the foreign exchange market to influence the value of their currencies. Governments do this by flooding the market with their domestic currency in an attempt to lower the price or, conversely, buying in an effort to raise the price.
The USD appreciated over 500 pips in just one hour on September 6, 2011. This represents a $5,000 move on a standard 100,000-lot trade of the USDCHF.
[caption id="attachment_12935" align="aligncenter" width="550"] Swiss Central Bank intervention in the CHF[/caption]