This article covers the economic data that may have an effect on the FX rates.
Economic theories may cause FX movements, but economic data has more of an impact on the daily or weekly trading market. In the same manner as a company’s stock price is affected by its latest financial data, a country’s currency can be affected by information and news on its economy. Changes in inflation, interest rates, consumer confidence, GDP, unemployment and political climate can all lead to either large losses or gains.
There are a huge number of economic announcements made globally each day. This can be intimidating at first, but as you learn which ones are more important, it will become easier.
Interest rates in a country are extremely important to the FX world. The focus by participants in the forex market is normally placed on the changes made by the central bank. This bank rate is usually used for the adjustment of the country’s monetary supply and to implement its monetary policy. Central banks meet on a regular basis to discuss inflation and interest rates.
Data related to inflation is a measure of an increase or decrease in price levels over a specific time period. The huge range of services and goods in a country makes it quite difficult to assess price changes. To overcome this problem, a basket of goods and services is used to measure the price changes. If the prices have increased, it is indicative of inflation which means the country’s currency value will decline.
Most global countries release data related to the number of employed individuals. In most instances, increases in the employment levels indicates that the economy of the country is strong and decreases in employment levels means that the country’s economy is in a state of decline. If a country has experienced an economic decline recently and it releases strong employment data, it is a sign that it is on the road to recovery. The other side of the coin is that high employment levels could lead to higher inflation levels and this will push the currency value down. This makes it evident that economic data and currency price movements often depend on a broader spectrum of the economy when the figures are announced.
Durable goods are those items with a lifespan in excess of three years. The data related to this measure the quantity of manufactured goods ordered, delivered and unfilled for a specific period of time. The goods included in this sector are items such as appliances and cars. It provides economists with an idea of the level of individual spending on long term goods. It also provides an overall idea of the economic health of the manufacturing sector.
FX and Gross Domestic Product
This is a measurement of all the services and finished goods generated within a country during a certain time period. This calculation is divided into four sections, namely government spending, total net exports, business spending and private consumption. The GDP of a country is considered to be the most efficient overall measurement of a country’s economic health. An increase in gross domestic product normally signals growth in the economy.
There is so much available data released on a regular basis that it can be quite difficult to keep up with it all. It is important though to know which releases may affect your currency pairs and keep up to date with it.