The Effect On Forex Rates By Economic Factors

Forex Rates and Economic Factors

This article looks at the effects of major economic indicators on forex rates.

A movement in the economic climate of a country will have an impact on its forex rates.  Economic news and data have a huge impact on a country’s currency value.  The main factors that affect a country’s economic climate include consumer confidence, inflation, unemployment, interest rates, and gross domestic product, along with its political climate.

Unemployment

It is possible to locate updates on the number of unemployed and employed people for most countries.  In the US, a monthly report titled non-farm payrolls is released on a monthly basis.  This report provides details of the employment data in the US.  This is an extremely important global report.  The trend that is determined is that if there is an increase in the rate of employment, the country is experiencing economic growth.  If there is a decrease, it may be an indication of a decline in the economic growth.  These trends are general and when viewing these figures, the country’s current economic situation should be considered.  For example, if a country has experienced an economic downturn.  If its employment figures were to increase, it could have a positive effect on the country’s currency value.  The surge in employment levels may be an indication of economic recovery.  If the country has a volatile economy, this increase in the employment levels could push the inflation rate up which would cause the currency to decline.

Gross Domestic Product

The GDP of a country is a calculation based on the total value of finished goods and services that has been generated within the country during a specified time period.  This calculation is comprised of net total export, government spending, business consumptions and private consumption.  This figure is considered to be the most efficient method of calculating the economic health of a country.  When this figure increases, it indicates that the country’s economy is growing in a positive manner.

Retail Sales and Forex Rates

This figure comprises of the sales level of goods amongst the country’s retailers.  It is an indication of consumer spending.  The data is obtained from a range of stores to offer a view of the level of consumer spending.  If the level is increased, it indicates that the country’s economic health is strong.

Inflation

The calculation of the inflation rate is indicative of the price changes over a certain period.  This is determined by making use of a select basket of goods and services and comparing the price changes to a previous time period.  Some countries release this information on a monthly basis.  In the event that the increases are higher than expected, it could push the value of the country’s currency down.

Macro-Economic and Geopolitical

The most drastic currency changes are often as a result of macro-economic or geopolitical events.  These events include wars, elections, financial crises and adjustments to the country’s monetary policy.  Events of this size can reshape or drastically alter a country, including the economic principles.

It is absolutely critical for forex traders to remain up to date with all economic news release related to the countries of their currency pairs.  There indicators could point you in the direction of the movement in currency price.

 

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