Economic Indicators That Impact Forex Market

By Mark Bennett

The strength of a country’s economy is assessed based on various factors. Some of these measure performance of separate sectors, such as housing. Others help evaluate the economy as a whole. In particular, this is true for GDP and unemployment. Forex traders keep track of these indicators.

Here are the most crucial indicators relevant to Forex trading. From macroeconomics to domestic policies, there is a lot to analyze. Luckily, trading platforms are packed with forecasting tools for any assets – be it currencies, stocks, or derivatives.

Macroeconomic Realm: Basic Factors

This includes primary drivers of a national market that define the monetary worth of currencies. This affects speculators’ decisions at any given moment. How much the US dollar or Euro costs largely depends on the health of the global economy.

The macroeconomic dimension is affected by a number of factors. These are changeable indicators, which corresponds to the 24/7 nature of the global currency exchange. Any player engaged in digital Forex trading must realize basic economic correlations and finance causations. Here is a brief look at the main contributors to the changes.

Capital Market Shifts

These are perhaps the most obvious signals of economic health. We are incessantly bombarded with a flow of news about deals between corporations, institutions, and government entities. Market participants know forecasts need to change when they spot noticeable movement of securities from one country.

In many economies, including Thailand, a few industries are responsible for most of the shifts. The same can be applied to commodity trade. This involves products like crude oil, precious metals, and wheat. Most brokers in Thailand are interested exactly in these fields. How the related prices move hinges on how much the dollar is worth. This reveals the dimension in which currency traders and commodity traders are similar. Their activity is affected by financial data.

The power of the bond market should also be factored in. As currencies are tied to interest rates, they share some of their characteristics with fixed income securities. Thus, oscillations of treasury prices affect currencies. Meanwhile, yield changes cause changes in values. Awareness of how such securities (especially government-issued) function is essential.

Subtleties of International Trade

This dimension concerns goods and services sold across national borders. Usually, the more powerful the demand from a certain country, the more its currency is worth. For instance, here is what happens when foreign parties order products from the United Kingdom.

The buyers need to exchange their national currencies for GBP, which triggers appreciation of the latter. The opposite scenario (import to the UK) correlates with the depreciation of the British pound. As a consequence, the state international trade reflects the demand and serves as a vital indicator.

Other essential aspects are trade deficits and surpluses. These reflect the degree of national competitiveness. Importing nations tend to accumulate large deficits. This means their national currency is being sold to settle payments to importing nations. As a consequence, the money is likely to lose value.

Political Realm: Basic Factors

Any national currency may gain or lose value as a consequence of political strife. Generally, political moves determine monetary prospects. These, in turn, affect the price ascribed to local money. Thus, keep track of political news to foresee future measures. For example, government spending may be intensified, while restrictions on certain industries will be tightened.

Elections offer a classic example of this causation. For instance, after Brexit was announced, the value of the British pound collapsed to its lowest in 30 years. In general, exchange rates are positively influenced by governments that prioritize economic development.

A government’s money management style is where its power over currency stems. Strategies pursued by central banks define interest rates. These may affect the national money system, sometimes significantly.

Release of Financial Data

An experienced player recognizes the value of such information. To stay up-to-date, many traders keep a report calendar. Here are the key indicators to trace.

1. Gross domestic product

The basis of a country’s economic efficiency is its production of goods and services. Please note that GDP is retrospective. As a lagging indicator, it only demonstrates tendencies and phenomena that have already occurred.

2. Inflation

The measurement informs of rising prices and the ensuing deterioration of purchasing power. Inflation causes currencies to depreciate or appreciate. Hence, its intricacies should be understood.

3. Other factors

You will also gain insights from analysis of employment stats, sales of retailers, and production. These point to the present and projected viability of a national economy.

In general, currency values are affected by a wide range of changes that vary in scope. From geopolitical conflicts to domestic monetary initiatives, the sheer number of factors is impressive. A reputable Forex broker makes sure clients have a wide range of forecasting aids. These facilitate decision making in the vibrant ever-changing marketplace.