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Messages - SammyDak

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Impact of news announcements on foreign exchange markets

While understanding the markets and their overlap can help a trader organize his or her trading schedule, there is one influence that should not be forgotten: the news release.

A big news release has the power to improve a normally slow trading period. When a big announcement is made about economic data - especially when it contradicts the predicted forecast - a currency can lose or gain value in a matter of seconds.

Although dozens of economic releases occur every weekday in all time zones and affect all currencies, a trader does not need to be aware of all of them. It is important to prioritize news outlets between must-watch versus must-watch news outlets.

In general, the more economic growth a country produces, the more positively the economy is perceived by international investors. Investment capital tends to flow to countries that are believed to have good growth prospects and subsequently good investment opportunities, leading to a strengthening of the country's exchange.

Also, a country that has higher interest rates through its government bonds tends to attract investment capital as foreign investors pursue high yield opportunities. However, robust economic growth and attractive yields or interest rates are inexorably intertwined.

Examples of important news events include:

- Interest rate decisions by central banks, as higher interest rates tend to attract more global investment and capital flows, strengthening the currency
- CPI data, which measures inflation and can influence central bank policy
- Trade deficits or more imports relative to exports, meaning more cross-border capital flows affecting exchange rates
- Consumer consumption – a major driver of economic growth in the US and globally
- Central bank meetings as all remarks are closely watched for indications of future interest rate movements
- Consumer confidence, which measures how the average consumer feels about the economy and affects consumer spending
- GDP or gross domestic product figures are a measure of all goods and services produced in a country
- Unemployment rates which measure the unemployed labor force as lower unemployment usually leads to better growth and a stronger currency and vice versa
- Retail trade measures how much is spent by consumers and drives economic growth

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