How various economic indicators affect the exchange rate
Currencies react quite sensitively to changes in the economic indicators of the issuing country; sometimes, after a news release, a currency pair can move several dozen pips in a matter of minutes.
Therefore, it's important to know what might follow a change in the key interest rate or an increase in unemployment; there aren't many key indicators that actually influence the exchange rate.
When conducting fundamental market analysis, it's important to understand the relationship between these changes and the currency's reaction to them.
In addition, it is necessary to take into account the capacity in which the analyzed monetary unit is included in the currency pair.
• Trade balance deficit - an increase causes a decrease in the exchange rate of the national currency, and a decrease, accordingly, its strengthening.
• Balance of payments deficit - the currency reacts as in the previous case.
• Inflation indices - their growth clearly indicates a devaluation of the currency, which means the exchange rate will decrease.
• Rising prices of government bonds - a positive phenomenon, which means the exchange rate of the currency will rise.
• Stock index prices - is directly dependent on the exchange rate.
• Unemployment - in this case, an inverse relationship already exists: as the unemployment rate decreases, the national currency only strengthens.
• Money supply - or in other words, the amount of money in circulation, the more there is, the cheaper it is, that is, an increase in the money supply leads to a decrease in the price of currency.
• Retail sales - have always been a positive factor, their increase leads to strengthening of the monetary unit.
• Interest rates - their growth causes an increase in exchange rates, since it most often leads to a shortage of money.
• Productivity in the economy - has a positive impact on the value of national currencies.
Using various fundamental factors As benchmarks for real trading on the exchange, it's important to remember that not all of them have the same impact on the trend. The degree of influence, as well as the expected release date for a particular indicator, can be found in economic calendar.
