The foreign exchange, or 'forex', markets are the biggest in the world. That makes them a natural target for spread betters trades can be done quickly, cheaply and 24 hours a day, five days a week. So what are the key economic indicators that a currency trader should watch? Here are three.
1. GDP figures
News that the UK economy grew twice as fast as expected in the third quarter of this year has sent the pound up sharply up against the euro and several other major currencies. Anyone who had an open 'long sterling' (an upbet on the pound) position would have made good money.
GDP figures are an ongoing measure of what is happening to a country's wealth. And since an exchange rate is broadly speaking a barometer of a country's economic health, surprises on the upside for GDP tend to send a country's currency higher.
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2. Interest rate announcements
Central bank interest rates have been at record lows in many countries as governments have attempted to stave off recession. Since this interest rate determines the return an investor can get from investing in say sterling rather than Swiss francs, any hint that the Bank of England, for example, plans to raise its rate will send sterling up.
Indicators that can suggest a rise in rates is ahead include inflation data. Rising inflation is usually tackled by raising rates (though that's arguably not the Bank of England's focus right now). So it's also worth watching the Consumer Price Index inflation figures, released monthly in this country and several others.
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3. Employment figures
An uptick in employment numbers is one tangible sign that firms are starting to hire again. That in turn suggests company directors are more confident about the future of an economy. And that's usually good news for the country's currency. So always watch key employment data. Given the US economy is still the biggest in the world, the monthly US non-farm payroll numbers are one to keep on your watch list.
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