Economic Data

Economic data typically comes in the form of news releases that are disseminated daily.

This information is extremely valuable to retail and institutional forex traders, given the influence such data has on currency rates.

Most of the major economic events that are released are reported by sovereign governments throughout the globe.

Moreover, there are several economic data points that are released by private organizations that can also move the market.

By and large, when new information becomes available the value of a currency pair will change to reflect a potentially new equilibrium created by traders.

This information that changes the value of a currency pair can ultimately come in many forms, with economic indicators or data being primary drivers.

Why Economic Data Matters in Forex

Economic data is an important barometer that investors can use to measure the performance of an economy. This in turn can influence currency rates.

For example, the stronger the economic data, the more likely growth will rise in the country, causing a currency to strengthen.

If Gross Domestic Product (GDP) growth in the United States is high, this will help cause the US dollar to rise in value.

The reverse is also true. Typically, weaker economic data can forecast a slowing of growth.

What traders’ attempt, when trading economic data is to measure how economic indicators are perceived relative to expectations.

Before nearly every economic release, the market generally prices in is the median expectation reflected by analysts and economists.

These known variables are simply expectations, and the unknown is the actual release.

Since currency pairs can move significantly based on new data, traders are always trying to anticipate where the actual figures will come in upon release.

Changes to economic data will also filter down to potential changes to interest rates by a central bank.

Overall, economic announcements from the United States and Eurozone are heavily watched as they will influence the perceptions of market participants which help drive interest rates and other monetary policy by the Federal Reserve or European Central Bank (ECB) respectively.