How a Currency’s Price is Calculated From Fundamentals

[bella2175]

Hi all,

Question about how the pricing of currencies works. What I want to understand is who is deciding and how that the EUR/USD (for example) should be at or around 1.1365 today? What fundamental economic indicators are being used to calculate that price? Who is to say that perhaps it shouldn’t be higher or lower based on certain fundamentals? How is this calculated?

Thank you!

 

[J_C_Anderson]

It would be better to say that price is determined by psychological reaction based on fundamental news. That is why we can see huge volatility after important information is released: all market participants are trying to find the relevant price.
So the price is not "fixed" by the fundamentals, it is the result of traders` reaction and attitude to the news.

 

[Enivid]

The current price you see in the trading platform is the price of the last deal for the currency pair. It is the market participants who decide at what price to sell and at what price buy, not the fundamentals. Using a limit order you can try to buy at a price, which is significantly below the current price, but no one will want to sell you at that price - why would they if they can sell at the current price, right?