Four reports that affect the greenback and you should be aware of. Knowledge of the events affecting each currency and pairs of currencies is essential in Forex trading.
Four Reports – FED Interest Rate Decision
The monetary policy of each national bank affects the national currency. Decisions for interest rates are among the most impactful for a currency. The Federal Open Market Committee (FOMC) members vote on where to set the rate. The FOMC meets regularly eight times annually and extraordinary when needed. FED releases the minutes of regularly scheduled meetings three weeks after the date of the policy decision. Even if the FOMC does not change the rate, the meeting minutes give traders a close view of U.S. economy.
Traders watch interest rate changes closely as short-term interest rates are the primary factor in currency valuation. A higher than expected rate is positive/bullish for the USD. Hence, a lower than expected rate is negative/bearish for the USD.
U.S. Gross Domestic Product (GDP)
Analysts generally consider Gross Domestic Product (GDP) as the widest measure of the overall health of an economy. GDP measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy. All in all, it is the broadest measure of market activity and the primary indicator of the economy’s health. Also, it is the key indicator for considering whether an economy is healthy or not.
Traders interpret stronger than expected GPD data as positive for the greenback. Thus, a low reading is negative to the dollar.
US GDP is released on a monthly basis by the US Bureau of Economic Analysis. There are 3 versions of GDP released a month apart – Advance, second release and Final.
START TRADINGFour Reports having an effect on Dollar – NonFarm Payrolls
Nonfarm payroll employment is a compiled name for goods, construction and manufacturing companies in the US. Nonfarm payroll (NFP) excludes farming industry, private household employees, or non-profit organization employees. NFP is an influential statistic and economic indicator released monthly by the Bureau of Labor Statistics. It forms part of a comprehensive report on the state of the labor market. In general, increases in employment means that businesses are hiring which means they are growing. Further, those newly employed people have money to spend on goods and services. Therefore, they further fuel growth.
If the economy is adding jobs at a healthy pace, interest rates may move higher. The financial assets most affected by the nonfarm payroll (NFP) data include the US dollar, equities and gold.
The figure released is the change in NFP, as to the previous month. A higher than expected reading should be taken as negative for the USD. Yet, a lower than expected reading is positive/bullish for the USD.
The Nonfarm Payroll Report is released on the Friday after the conclusion of the reference month.
Industrial Production Index
The Industrial Production Index (INDPRO) is an economic indicator measuring real output for businesses in the USA. Such businesses are integrated in industrial sector manufacturing, mining, and electric, and gas utilities. The Fed’s index of industrial production and the related capacity indexes and capacity utilization rates are published monthly. The index measures real output, as a rate of real output in a base year.
Growth in the INDPRO from month to month is an indicator of growth in the industry. Further, such data reflects changes in overall economic activity, so strong figures are a bullish sign for the dollar. On the other hand, weak data is a bearish sign.
The Fed Board releases the index on or around the 16th of each month, for the previous month.
Sources: Wikipedia, investing.com, Federal Reserve, Investopedia, Reuters
PLEASE NOTE The information above is not investment advice.