What Moves the Forex Market? The Main Drivers Explained

The forex market moves when demand for one currency changes against another, driven mainly by interest rates, economic data, trade flows, risk sentiment and news. Behind every move is a shift in the balance of buyers and sellers, and the biggest moves usually follow what the market did not expect.

Module 1 · Lesson 5 of 5

KCM Academy Editorial Team
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Last updated 19 October 2026

What you'll learn

What moves the forex market?

The forex market moves when demand for one currency changes compared with another. Interest rates and central bank decisions, economic data such as inflation and jobs figures, trade flows, risk sentiment and major events shift that demand. Prices then move toward whichever side has more buyers or sellers, and surprises move them most.

The same mechanism moves every market, from currencies to shares and commodities: prices move because the balance between people wanting to buy and people wanting to sell keeps changing. When more buyers than sellers want to trade at the current price, the price rises until enough sellers appear. When sellers outnumber buyers, it falls.

A price is simply the latest level at which a buyer and a seller agreed to trade. For currencies, the Reserve Bank of Australia says exchange rates are determined by the demand for, and supply of, a currency in the foreign exchange market.

Diagram of buyers below a price line pushing it up, sellers above pushing it down, and news tipping the balance so the price line bends
  1. Buyers (demand) push the price up.
  2. Sellers (supply) push it down.
  3. The price line is where the two sides currently meet.
  4. News tips the balance toward one side. A different headline could tip it the other way.

How do buyers and sellers set the price?

Buyers and sellers set the price through their orders: buyers say the most they will pay, sellers the least they will accept, and a trade happens where they meet. When buy orders use up everything sellers offer at one price, the next trade happens at a higher price. Heavy selling does the opposite, pushing the price lower.

MetaTrader 5 shows this list in its Depth of Market window. For over-the-counter instruments, such as many CFDs, its levels may be built from your broker's bid and ask prices rather than real orders.

Worked example: more buyers than sellers

Synthetic figures: a share is quoted at $20.00 bid and $20.02 ask, with sellers waiting here:

Ask price Units offered
$20.02 500
$20.03 600
$20.04 800

A buy order for 1,500 units arrives:

  1. It buys all 500 units at $20.02.
  2. It buys all 600 units at $20.03.
  3. It buys 400 units at $20.04, leaving 400 there.

The best ask is now $20.04. Nobody decided the share was worth more; one large buyer used up the cheaper sellers. A large sell order walks down the bids the same way.

What are the main drivers of price?

The main drivers of price are supply and demand, news and economic data, interest rates, risk sentiment, major events, liquidity and volatility. Each works by changing how many people want to buy or sell, or how much volume waits at each price. Their effects differ between asset classes.

Driver What it is Example Typical effect
Supply and demand How much people want to buy or sell at each price Many buy orders, few sellers Price moves toward the side with more pressure
News and data New information about value Company results, inflation, jobs or growth figures Little change if expected; a sharp move either way if it surprises
Interest rates The return on a currency's deposits and bonds An unexpected rate rise All else equal, tends to support that currency; an unexpected cut, the reverse
Risk sentiment How much risk investors will take Global shares fall sharply Money shifts between riskier and safer assets
Major events Political and world events Elections, conflicts, natural disasters More uncertainty; sudden moves either way
Liquidity How many buyers and sellers are active A public holiday Wider spreads, bigger jumps on smaller orders
Volatility How far and how fast price swings A busy news day Bigger moves in both directions; size, not direction

Why does news move prices?

News moves prices when it changes what people expect, so the surprise matters more than the news itself. Prices already reflect what most people expect. If a result arrives exactly as forecast, few people change their orders. If it is better or worse than expected, buyers or sellers rush in and the price can jump.

The Reserve Bank of Australia lists speculation, news and events among the influences on exchange rates.

News as expected News that surprises
What changes Little; it was already in the price Expectations about value, rates or growth
Typical reaction Small or brief Fast, sometimes large, either direction

Even wording can surprise. A Federal Reserve Board study describes 28 January 2004, when markets fully expected US rates to stay unchanged, yet bond yields jumped because new wording in the statement suggested rates would rise sooner than expected.

The economic calendar and big releases are covered in Module 8, Fundamental Analysis.

Worked example: a surprise on a chart

This chart uses synthetic prices: 5-minute candles on a currency pair quoted to four decimal places.

Candlestick chart of a quiet price range followed by a large news candle at 09:00 and a fast partial pullback on the next candle
  1. Calm range: until 09:00 the price drifts between about 1.0846 and 1.0858.
  2. News candle: a surprise at 09:00 lifts the price from near 1.0852 to 1.0890, a 38-pip rise.
  3. Snap-back: the next candle closes at 1.0872, giving back 18 pips.

A pip here is 0.0001, as explained in lots, pips and pip value. On a 0.10 lot position, where one pip is worth $1, the news candle is a $38 change, gained or lost depending on the position's direction. Five minutes later, $18 had reversed. Check pip values with the pip value calculator.

How do interest rates affect prices?

Interest rates, set mainly by central banks, affect prices by changing the return people earn for holding a currency's deposits and bonds. All else equal, when one country's rates rise compared with others, its interest-paying assets look more attractive to foreign investors. They need that currency to buy them, so demand for it rises. Lower rates work the other way.

The Reserve Bank of Australia says that, all else being equal, an increase in interest rates contributes to the exchange rate being higher than otherwise, and that its monetary policy decisions play a key role in influencing the exchange rate. As with news, markets react most to rate changes they did not expect.

How do inflation, trade and economic data affect currencies?

Inflation, trade and economic data affect a currency by changing how much of it people need or want to buy. Trade creates real demand: buyers abroad need a country's currency to pay for its exports. Inflation and growth figures change what markets expect from interest rates, which is why data releases can move currencies within seconds.

Data release What it measures Why currency traders watch it
Interest rate decision The central bank's policy rate Changes the return on holding the currency
Inflation (CPI) How fast consumer prices are rising Shapes expectations for future interest rates
Employment Jobs created and the unemployment rate A signal of economic strength and future rates
GDP Total output of the economy Shows whether the economy is growing or shrinking
Trade balance Exports minus imports Shows trade-driven demand for the currency

A pair compares two currencies, so data from both economies matters. Each release moves prices mostly through the gap between the figure and what was expected.

What is risk sentiment?

Risk sentiment is how much risk investors are willing to take on at a given time. When confidence is high, money tends to flow toward riskier assets such as shares. When fear rises, it tends to move toward assets seen as safer. These shifts can move many related prices at once, across different markets.

The Reserve Bank of Australia notes that its currency tracks changes in risk sentiment, typically rising when global share prices rise.

How do liquidity and volatility affect price moves?

Liquidity is how easily something can be bought or sold without moving its price much; volatility is how far and how fast its price swings. In a liquid market there is plenty of volume at each price, so one order moves the price only a little. In a thin market, the same order can push it much further.

Liquidity is often lower on holidays and in quiet hours, and it changes as financial centres open and close, covered in forex market sessions. Where your broker's prices come from is explained in brokers and liquidity providers.

What happens when prices move fast?

When prices move fast, they can jump past nearby levels, reverse sharply and cost more to trade, all within seconds. On a leveraged position, a fast move changes the result quickly in either direction, so skilled traders set their stop loss and position size before a big release, not during it.

Stop losses, including how they fill in fast markets, are covered in Module 5, Risk Management.

Try it on demo

In MetaTrader 5 on a demo account, open Market Watch, right-click a currency pair and choose Depth of Market. Watch the bid, ask and spread for a few minutes, noting how the spread behaves in calm and busy moments. Do not trade; just observe.

This lesson is part of Market Basics. Next, see how the side you take turns a price move into a gain or a loss in going long and short.

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Quick check

  1. What sets a market price at any moment?
  2. The best ask is $20.02 with 500 units offered. A buy order for 1,500 units arrives. What happens to the ask?
  3. Good news is expected and then arrives exactly as expected. The price most likely
  4. Risk sentiment means
  5. Buyers abroad want more of a country's exports. All else equal, what happens to demand for its currency?
  6. Liquidity is low, for example on a holiday. What is more likely?

Frequently asked questions

Why do prices go up when there are more buyers?

Because buyers use up what sellers offer at the current price. The next buyer must then pay the next price at which someone will sell, which is higher.

Does good news always make a price go up?

No. If good news was already expected, the price may barely move, or even fall if the result disappoints. What matters is how news compares with expectations.

Does the same thing move every currency pair?

No. A pair compares two currencies, so it moves on news from both economies and on how their interest rates, inflation and growth compare. Currencies of big commodity exporters, such as the Australian dollar, can also follow the prices of what those countries export.

Can you predict which way a price will move?

Traders work with probabilities, not certainties. Knowing what moves prices, which releases are scheduled and when liquidity is thin tells you when big moves are likelier. Position size and a stop loss then set what each trade can cost, whichever way the price goes.

Sources

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