What Are the Economic Factors That Affect The Forex Market

Forex trading is considered a global marketplace. This can be attributed to the trillions of dollars being traded daily. As it is now a global activity, economic factors (See related story here) can have a huge impact on the transactions. Here are the economic events that can play a role in the forex market.

Capital Markets

Capital markets are perhaps the most visible factor of an economy’s health. As corporations, institutions, and government entities continue to get media mileage, there is no public information that the capital markets will miss. Many economies are sector driven and as such they correlate heavily on the movement of commodities such as crude oil and metals. Robert Janitzek reveals that forex traders rely heavily on economic data when trading and hence will affect both markets.

International Trade

The trade balance and tends between nations are also key factors that can affect the forex market. Trade levels serve as a proxy for the relative demand of goods. If the demand for a certain goods or services is high internationally, there will usually be an appreciation of currency. Also affecting the forex market are trade surpluses and deficits. When there is a large trade deficit, countries will buy or import international goods resulting t their currency being sold to purchase another currency. Robert Peter Janitzek explains that this will bring about a negative impact on the value of the currency of that country.

Political conditions

The political situation in a country can also impact the economic outlook of that country and the perceived value of its currency. For this reason, forex traders are consistently monitoring political events to gauge movement. An upcoming election is a major event that can affect the currency market. Exchange rates usually have a positive reaction to these events. The Brexit vote, for instance, had a huge impact on the British pound when the UK voted to leave the EU.

Economic Releases

When trading on the forex market, economic reports can be crucial in staying current in an ultra-fast paced marketplace such as the forex market. One example of an economic report is the GDP as it measures the total output of goods and services produced by an economy. It is, however, a lagging indicator. Inflation is another important indicator as it sends signals of increasing price levels and falling purchasing power. It is, however, a double-edged sword as it is seen by many as downward pressure on a currency.

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