In the long run a currency reflects the economy behind it. In the short run it reacts to surprises: data that came in better or worse than expected.

Interest rates

Money flows to where it earns more. When a central bank raises rates, or the market expects it to, holding that currency pays more and demand rises. Rate expectations are the single most important driver of major currencies.

Inflation

Inflation erodes a currency's purchasing power, but in practice higher-than-expected inflation often strengthens a currency in the short run, because traders expect the central bank to raise rates in response.

Growth and employment

Strong GDP, jobs and retail sales point to a healthy economy that can support higher rates. Key releases include US non-farm payrolls, purchasing managers' indices (PMIs) and GDP estimates.

Risk appetite

When investors are confident they buy higher-yielding and growth-linked currencies such as the Australian and New Zealand dollars. When they are scared they move into safe havens: the US dollar, Japanese yen, Swiss franc and gold.

Expectations, not headlines

Markets price in what they expect. If economists forecast 200,000 new US jobs and the figure is 210,000, the reaction may be small. If it is 50,000, the dollar can drop sharply. Always compare the actual figure with the forecast on the economic calendar.

Correlations between pairs

Many pairs move together because they share a currency:

Buying EUR/USD and GBP/USD at the same time is close to doubling one bet on the dollar falling. Count correlated positions as one when you add up your risk.