The main economic indicators that drive the markets

In this article we will look at the main economic indicators and how they affect the country's exchange rate or stock index. We will leave aside the specific state of the economy (as far as possible) and try to conclude on the importance of individual economic indicators. The main indicators, which have a very strong impact on both the national currency and the stock indices, are the key interest rates of central banks, GDP, consumer prices, consumer confidence and inflation.

Central bank interest rates in a given country are one of the main factors influencing currency movements. How does the change affect the currency? Movement in interest rates is fully correlated with exchange rate fluctuations. For example, when a given CB increases the interest rate, it is typical for the national currency to appreciate. This is because high interest rates make assets denominated in the respective currency of the country more attractive, which raises their demand and hence the price of the currency.

Gross domestic product is another important indicator. It measures the value of all goods and services produced on the territory of the country. An upward trend is usually positive for the country's currency and vice versa.

The consumer price index measures inflation at the consumption level. This is perhaps the most important inflation indicator and it is watched vigorously by central banks. Its high values ​​have the potential to cause the central bank to raise interest rates in order to "cool" inflation, and from there the publication of positive data leads to a rise in the national currency and vice versa, worse data devaluates the currency.

Consumer confidence is calculated by surveying among a large enough number of people, and based on their answers, what will be the consumer sentiment in the country. Correspondingly, high indicator values ​​are positive for the country's currency as high consumption can create inflationary tensions and cause the central bank to raise interest rates, hence a more expensive currency

Another important indicator is the so-called Purchasing Manager's Index (PMI) for the different sectors of the economy. For example, PMI for the service sector in Germany reflects managers' moods and expectations for the future of service companies. Values ​​above 50 signaled the sector's development, and below 50 - it was shrinking and influenced by the change in the indicator. Better than expected data leads to appreciation of the currency and worse to depreciation.

picture: pixabay.com

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