Economics and Forex Market

Forex market is affected by the change in the fundamentals of a country’s economy. Economical data have a significant impact on currency rates. There are many economical factors of a country that affect the rates of the currency unique to that country but some economical indicators have immense influence on the forex market as a whole irrespective of the fact that which country is making the announcement.

Given below are those crucial economical indicators:

Employment

Employment data is an important economical indicator that influences the currency market. Countries like U.S release their employment data on regular basis. Economic growth of any country is indicated by how much employment opportunities have been created. The general trend is that increase in the employment shows positive economic growth while decreasing employment means decline in economic growth. Decline in the employment rate means contractions in the currency market and vice versa.

One must also consider the current economical position of a country. If a country is facing economical problems, the increase of employment can increase the rate of its currency as it could be a sign of recovery or strengthening of the economy. While it would not be the same for a country with overheated economy, as increased employment could mean inflation causing the currency rates to fall.

Inflation

Inflation data of any country reflects the changes that have occurred in the price level over a time period. As there are huge amount of goods and services within any economy, it is difficult to consider all of them. Therefore, the prices of only handful goods and services are used to calculate the changes that have occurred. If the prices of goods and services increase more than what is expected then it is regarded to be a sign of inflation and the rate of currency will depreciate.

GDP

GDP or gross domestic product is a total that shows all the finished goods and services that a country has generated during a given period. Total exports, government spending, private consumption and business spending are used to calculate GDP. GDP reflects the overall health of economy. Thus, if GDP increases it means economy is growing and vice versa.

Retail sales

Over a period of time, the amount of sale generated by retailer is indicated in retail sales data. Retail sales show the spending capacity of the people of any country. The strength of the economy also helps in determining the economic strength of the company. Increased spending capacity of consumers means strong economy, therefore, higher currency rates.

Macroeconomic and political events

Political developments all across the globe like elections, war, policies etc. affect the rates of forex market. Traders must be up to date with all the macroeconomic and geopolitical developments all around the world.

Interest rates also affect the rates of currency in the forex market. Traders must follow all the news releases that occur around the world. Changes in interest rates, inflation, unemployment, consumer spending capacity, political stability and direction, etc. can affect the forex market depending on the nature of announcements.