You are going to through your newspaper and the first thing that caught your attention is, ‘ERUGBP exchange rate falls as Brexit approaches.’ You must be thinking, ‘What does that mean? And how is Brexit related to the trading market?’
So, buckle your seatbelt because we are going to take you on a rollercoaster ride of how the economic indicators run the Forex market.
You might already know that the trading market is very prone to fluctuation. But what triggers such fluctuation? The answer is economic indicators.
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What is an economic indicator?
Economic indicators are the predictors of the future performance of a country’s economy. For example, the budget, unemployment rate, GDP and many more factors.
Economic indicators state how strong or weak a country’s economy is. If the economic indicators of a country direct upwards, it means the economy of that country is blooming. On the other hand, if the indicators are arrow downward, then the economy is falling. Economic indicators help traders gauge the performance of a country’s economy.
Trading is mainly done with currency pairs of the booming economy. That’s why economic indicators play a key role in bringing about fluctuations in the trading market.
In most cases, major economic indicators come in form of a news release. So, whenever an economic indicator is disclosed, there begins a huge rush to buy and sell currencies.
Today, we’ll discuss some of the major economic indicators that drive this market.
The budget
Every country prepares a budget at the beginning of the fiscal year. When a budget is disclosed, commoners are free to know the plans of the government in relation to certain sectors. The main aim of a government is to invest in beneficial sectors and reduce expenses in non-profitable areas. It’s more like understanding the IPOs. Read more at Saxo and clear your concept on this segment.
So, by observing a budget, traders can predict the market value of an economy beforehand. Since the budget helps traders to predict whether that economy will flourish or not, they get the chance to buy or sell their currencies based on their presumption.
Employment rate
Employment is one of the fundamental rights of human beings. However, did you know that employment rates also affect the investment market?
Whenever the employment rate decreases, it increases inflation. As a result, the exchange value of a currency goes downward. This is because, when there’s high inflation, the amount of that currency increases and as per supply and demand, the value of that currency falls.
In the same way, if the employment rate increases, the exchange value also increases due to scarcity of that currency.
There might be various reasons for the increase in unemployment like a greater number of educated population than the number of jobs available, lack of skills, economic fall etc.
GDP
GDP or gross domestic product is also one of the major economic indicators. This is considered as the basic size of a country’s economy and reveals changes in economic growth.
A higher GDP means a higher demand for that country’s products whereas a lower GDP indicates the unwillingness of other countries to invest in that country’s products or economy.
Again, if the GDP of a country remains constant while the GDP of another country increases, it also indicates the increasing strength of the latter country’s economy. A high demand for a country’s goods makes investors more interested in that currency. GDP is related to the demand of the country’s currency and that’s why GDP is considered as a major economic indicator.
Inflation
Inflation can occur for many reasons. But whatever the reason might be, money inflation is never beneficial for a country’s economy. When there’s a greater amount of capital compared to the number of clients, the demand for the currency lessens. As a result, the value of that currency falls.
That’s why many traders often use an economic calendar to remain up to date about the economic indicators of a country. Since economic indicators are detailed in news releases, by keeping a close eye on economic indicators, you can ultimately earn some big money.
