- Forex Economic Calendar & Economic Indicators

- How to Identify Sentiment and Expectations

Forex Calendar

The Most Important Indicators

Interest rates

Interest rates are one of the most important drivers ofthe forex markets. The base interest rate of a country is set by itsrespective central bank. It is used by a central bank as a tool tomanage the economy – either by raising the interest rate tocurb inflation, or lowering the interest rate to promote growth.

• Inflation

Inflation measures how quickly the prices of goods and services rise in

a given period of time. An increase in the inflation rate means that

prices are going up more quickly. If the inflation rate falls, the prices of

goods and services still rise, but at a slower rate.

Hawkish vs. dovish

The terms ‘hawkish’ and ‘dovish’ refer to the attitude of a central bank toward managing the

balance between inflation and growth.

If a central bank is concerned about inflation, it is considered hawkish and is more likely to

adopt a higher interest rate.

If a central bank is concerned about growth, it is considered dovish and is more likely to

adopt a lower interest rate.

Concern about inflation Hawkish Higher interest ratesConcern about growth Dovish Lower interest rates

Summary

So far you have learned that:

• economic indicators report on the strength or weakness of an economy.

• traders use these reports to help determine the likely value of currency.

• the interest rate set by a central bank is one of the most important drivers of a

currency.

• interest rates can be raised to curb inflation and lowered to stimulate the economy.

• a higher interest rate usually results in an appreciation of a currency and a lower

interest rate usually results in a depreciation of a currency value.

• inflation measures the rate at which the prices of good and services rise over a

given period of time.

• central banks try to target acceptable levels of inflation. If the inflation rate falls

outside of the targeted rate this can have a detrimental effect on the currency value.

• Unemployment rates

Low unemployment rates mean a strong economy, which increases the demand for the currency.

The unemployment rate measures the percentage of the labor force that does not have a job and

is actively seeking employment.

If a low unemployment rate is reported, then investors may believe the economy of that country

is good. Therefore, they may seek investment opportunities in that country, causing a rise in the

value of that currency. A country with a rise in unemployment could be interpreted by investors

as a weakening economy, causing investors to seek opportunities elsewhere, and so the

currency may depreciate.

Examples

• Gross domestic product (GDP)

GDP measures the total produce of goods and services for a country.

GDP measures the total amount of consumer spending, investment spending, international trade and government spending within a country over a

certain period of time. It essentially measures the total produce of goods and services for an entire country. GDP is mostly measured on a quarterly or

annualized basis. If the GDP growth rate is high, then the economy is considered to be robust and the currency will likely appreciate in value. If the

GDP growth rate slows, then this can be seen as a weakening economy and the currency is likely to depreciate.

• Retail sales

Strong retail sales means consumers are confident in the economy and have more money to spend, therefore having a positive effect on the currency.

Consumer spending can account for a majority of an economy. If it does not account for the majority, it still generally makes up a substantial proportion

of it, and so retail sales data is an important indicator. Retail sales measure the total amount of consumer spending in a given month across various

sectors, such as electronic retailers, restaurants and car dealerships, to name a few. Strong retail sales growth indicates that consumers are confident

regarding the economy and that they have extra income to buy goods and services. An increase in retail sales therefore has a positive effect on the

currency.

• Home sales

Home sales rise and fall based on consumer confidence, mortgage rates and the general strength of the economy. A strong housing sector is

therefore positive for the currency.

• Trade balance

The trade balance report compares the exports and imports of a country in a given period. A country will either have a trade surplus or a trade deficit.

A trade deficit is when the imports of a nation exceed exports – a trade surplus is when the exports of a nation exceed its imports.

CONSENSUS RANKING OF EXCHANGE RATE DETERMINANTS

Exchange Rates per

US$, unless Otherwise

Stated

Relative

Growth

Inflation

Differential

Trade/

Current

Account

Interest Rate

Differentials

Short (Long)

Equity

Flows

Other Factors

(Score)

G-7 & Western

Europe

Euro 6.3 4.7 6.3 7.7 (6.7) 4.7 Sovereign Debt Risks

(6.0)

Japanese Yen 6.0 5.0 6.3 7.3 (6.7) 4.7 Quantitative Easing

(7.2)

UK Pound 7.7 5.0 5.7 8.3 (6.7) 4.3 US$/€ Exchange

Rate (5.0)

Swiss Franc* 4.3 5.3 6.0 6.3 (5.3) 4.0

Safe Haven Inflows

(8.0)

Central Bank FX

Policy (8.0)

Asia Pacific

Australian $ 7.3 4.5 5.8 8.2 (6.8) 4.4

Commodity Prices

(7.0) China Growth

(7.0)

New Zealand $ 7.0 4.5 6.0 8.3 (6.8) 4.3 Commodity Prices

(8.0)