All financial assets react to major news releases, as they often give clues about how healthy a country’s economy is, which strongly influences investor decisions, especially when it comes to the Forex or currency market.
While there are specific news releases for each asset class, some news announcements impact all markets, including the Forex market.
A central bank is the most important player in the Forex market, as it’s responsible for a country's monetary policy and fixes the price of its local currency. Therefore, any decision about open market operations and interest rate policies has a big impact on its native currency, because it will change the availability of money in the related economy, thus either supporting or reducing its value.
When interest rates are raised, investors and traders usually buy the currency because investments in the relevant currency provide a higher return compared to other countries, which generally attracts investors. Moreover, higher rates often indicate a stronger economy with more jobs and money to spend, which will support growth.
On the other hand, lower interest rates are unattractive for foreign investors, because they prefer to invest in countries with higher key rates. Moreover, falling interest rates could signal that the economy isn’t doing great and needs support. This situation impacts the investment, saving, and consumption decisions of all economic agents, which, in turn, impacts the country’s growth level.
The GDP figure is the most reliable indicator of the health of an economy, as it measures the total value of all the goods and services produced by a country over a specific period of time, which are often broken into 4 major categories: net exports, consumption, investment as well as government expenditures and spending.
Usually, when GDP figures come out higher than expected, the related currency will often outperform other currencies, as it signals that an economy is stronger than expected. On the other hand, when the GDP data is lower than expected, the currency will usually drop, as investors consider that the economy is weakening.
The GDP figure is often taken into consideration with inflation and employment figures to anticipate interest rate decisions.
The Consumer Price Index is one of the most well-known inflation figures used by central banks to determine if their monetary policies are following the right trajectory to reach price stability.
This CPI measures the change in prices of a basket of goods and services paid by customers across a country. Food and beverage, transportation, medical care, apparel, housing, education and communication, recreation, as well as other goods and services are among the major groups of expenses taking into account the CPI.
Another popular inflation measure is the PPI, or Producer Price Index, which considers inflation based on input costs to producers. This is the measure used by the American central bank - the Fed - to adapt its monetary policy.
The American employment report, which includes the Non-Farm Payroll figures, is one of the most important news releases for FX traders, as this report is used by analysts to anticipate any changes in the American monetary policy, as it provides clues about wage inflation and the employment situation.
The NFP is a key indicator that states how many American jobs were created (or lost on rare occasions) during the last month, excluding farm, government, private household employees, and nonprofit organization employees.
Usually, a better-than-expected figure indicates that more jobs were created during the last month, which is often a synonym of a stronger than expected economy and that more money might technically be spent. It can also mean that the Fed might raise its interest rates if the employment situation is strong enough, which is often a bullish signal for the USD - and vice-versa with lower-than-expected figures.
Geopolitical issues and tensions also impact all markets in one way or another, especially the Forex market.
Politics and international relations, as well as pandemics, wars, natural disasters, strikes, protests, and presidential elections, are among the most significant political events that can have a big impact on the value of a currency.
To always be aware of the news releases that occur when you trade, you should follow an economic calendar. You can also check out reliable sources that talk about business and market news.
Market reactions to news releases mostly depend on the current reading compared to the forecast, but also on the current reading compared to the previous one, or about the previous reading’s correction. Moreover, positive news isn’t always good news for the market (and vice-versa).
Now that you’re aware of the most significant news releases for FX traders, why not register an account to be able to participate in the Trading Cup contest and show off your trading skills?