Economics is the study of how the economy functions. In addition to governments, corporations, and individuals, economic news is also influenced by the currency market. 90% of trading volume comes from currency speculators who buy currencies in anticipation of a rise in interest rates. Most commercial banks put their capital in economies with a strong outlook. But even those with strong outlooks may not have the information necessary to judge a country’s future direction. In order to understand the economy, we need to look at some of the factors that are most relevant to a country’s currency.
Economic news is of particular importance for forex traders. They need to understand the impact that economic news has on their trading positions. By staying abreast of economic news, they can trade accordingly. Here are some examples of how economic news influences currency trading:
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The Fed is widely expected to increase the federal funds rate by 0.5% in May. This signaled a more hawkish approach to the fallout from the Russian invasion of Ukraine. Moreover, Comerica raised interest rates for 2022-2023. With the impact of the Russian invasion on Ukraine continuing to affect economies of many countries, the Fed signaled its hawkish stance in dealing with the fallout. Industrial production in January increased at a faster pace than expected, reflecting strong demand.
Despite the fact that major economists usually agree on the level of economic announcements, they are not always the same. A major difference in non-farm payrolls, GDP, and inflation can greatly influence a currency’s price. For example, a low unemployment rate suggests a strong economy, while low interest rates make a country’s currency unattractive, causing it to weaken against world currencies. That’s when you should look to the economic events calendar to find out what news is impacting the currency.
Although it may seem daunting to a small investor to trade his or her way to fortune, it is definitely possible for a small investor to achieve financial success in forex trading. In fact, forex trading is now considered the last great investing frontier, with small investors having realistic hopes of making it big in the currency market. Even if you’re just a novice, the forex market reacts to economic news from around the world and U.S. economic data. You can act on this information when it hits the market.