Fundamental news impacting the forex market includes economic data releases, central bank policies, geopolitical events, inflation rates, and employment reports.
GDP Growth Rates:
Reports on GDP provide insights into a country’s economic performance, with strong growth typically strengthening a currency.
Employment Data:
Employment figures, such as the US Non-Farm Payrolls (NFP), influence expectations for economic health and future interest rate policy. Higher employment typically supports a stronger currency.
Inflation Reports:
Consumer Price Index (CPI) and Producer Price Index (PPI) are key measures of inflation. Rising inflation can lead central banks to raise interest rates, often boosting the currency.
Interest Rate Changes:
Central banks like the Federal Reserve, European Central Bank, and Bank of Japan set interest rates to control inflation and support economic stability. Higher rates attract foreign investment, often strengthening the currency.
Quantitative Easing (QE) and Tightening:
Announcements of QE (asset purchases to increase liquidity) can weaken a currency, while tightening (reducing asset purchases or increasing rates) can strengthen it.
Trade Tensions:
Trade wars and tariffs can destabilize currency values, as investors seek safer currencies or react to potential economic disruptions.
Elections and Political Uncertainty:
Elections or political instability can make a currency more volatile. For example, Brexit event have led to significant movements in GBP/USD.
War or Major Conflicts:
These events tend to lead investors to "safe-haven" currencies like the USD, JPY, or CHF, as well as commodities like gold.
International Organizations:
Reports from the IMF or World Bank, especially forecasts or policy recommendations, can influence market sentiment around a currency’s future.
Manufacturing and Services PMIs: These indicators give insight into business activity in the manufacturing and services sectors. Strong PMIs generally support a currency, signalling economic growth.
Commodity Prices:
Prices of commodities like oil and gold influence commodity-dependent currencies. For instance, rising oil prices typically strengthen currencies like the CAD (Canada) and AUD (Australia).
Risk Sentiment:
Investor sentiment (risk-on or risk-off) affects the forex market. In risk-off situations (during crisis), investors move to safe-haven like the USD, JPY, and CHF.
Forex traders monitor these news events closely, as they often lead to significant volatility and trading opportunities in the currency markets.
Fullerton Markets Research Team
Your Committed Trading Partner