The macroeconomic indicators allow traders of the forex market to know the economic health status of a country. Thus, to anticipate the fluctuations of the currency. They are published at regular intervals by private or public study organizations.
These indicators are used by traders who love fundamental analysis. Although there are dozens and dozens of them, these generally follow the six that we present to you below.
Gross Domestic Product (GDP): The Most Important of The Macro-economic Indicators
It is the most important macroeconomic indicator that exists since it reports on the health of a country’s economy. It represents the total value of all goods and services produced during a specific period within a country (and without discounting the consumption of capital).
It is generally expressed as a comparison with production data from the previous quarter or year. When using this data, remember that the figure does not always reveal the reality that seems to be reflected after a first interpretation. So:
- A high GDP does not imply a more top quality of life. It only shows that the economic activity of that country is fully functioning.
- The figure provided by GDP does not reflect other realities such as well-being, the absence of crime, or sustainability.
- Nor does it reflect technological advances and their impact on the economic growth of a country.
In summary, it could be said that it is a good benchmark but has significant limitations. Specifically, all the non-economic factors it fails to take into account (such as social equality, access to education or public health, or the environment).
Interest Rate Announcements
Interest rates are one of the primary sources of exchange rate fluctuations in the forex market, which makes central banks the most influential market players. Interest rates stimulate investment flows between currencies, the different applied rates. They, therefore, naturally impact price levels and create volatility.
Consumer Price Index
The CPI is used to determine the level of inflation in a country. It is closely linked to the purchasing power of a currency. It, therefore, affects the valuation of national currency on international markets. Generally, when the CPI increases, there is a rise in interest rates, which will then enhance the attractiveness of the national currency considered.
Labor market indicators highlight the general health of an economy. It is indeed essential to know how many jobs have been created or destroyed. What percentage of the working population is working, how many new people are registering for unemployment is essential to understand how an economy works.
This indicator is published every month. It is an essential statistic for foreign exchange market traders. It reveals the strength or weakness of consumer spending and indicates the health of the retail trade. It is useful because it represents a barometer of consumer behavior.
Balance of payments
The balance of payments represents the difference between receipts received from abroad and payments issued by the country. When the revenues coming from abroad are higher than the cash, then the balance is in surplus. Conversely, it is in deficit. Generally, a surplus balance of payments favors the appreciation of the national currency.