As a Forex trader, we all know that a country’s currency value is affected by the economic activities of the country. But do you know which are the important data to look out for?
There are 5 major economic factors that affect the Forex market, they are:
I. Employment Data
This indicator shows the unemployment rate of a country. Generally, a high unemployment rate will weaken the country’s currency.
What You Need to Remember: When the unemployment rate goes up, the currency price will fall.
II. Interest Rate
Interest rate can cause a currency to appreciate because there will be more investors who are willing to invest their money since they will be provided with higher interest rate.
What You Need to Remember: When the interest rate goes up, the currency price will go up.
Inflation signals that prices are going up and purchasing power is weakening.
Though inflation will cause a currency to depreciate due falling of purchasing power, it can also give the most insight into future interest rates moves. Central banks may be forced to increase interest rates in order to curb rising inflation levels.
What You Need to Remember: When inflation is rising, the currency price will go down.
IV. Gross Domestic Product (GDP)
GDP measures the country’s overall economic outlook and is considered as a primary indicator of the strength and health of the country’s economy. However, GDP is a lagging indicator, meaning events reported have already occurred.
What You Need to Remember: When GDP is rising; the currency price will go up
V. Trade Balance Report / Current Account
Trade balance report determines the country’s economy and the relationship it has with the rest of the world. It consists of a total number of transactions including its exports, imports, debt, etc. A country that has significant trade balance deficit will generally have a weak currency.
What You Need to Remember: When there is a significant trade balance deficit, the currency price will go down.