Economic indicators (GDP, key interest rates, consumer price indexes, etc.) are closely monitored by foreign exchange market players. The indicators in some countries or currency areas have a greater impact on the currency market than others. But which countries and which indicators are the most influential?
Economic indicators are broadly divided into three categories: leading, coincident and lagging.
Certain types of indicators have an immediate influence on the foreign exchange market, such as GDP and key interest rates. For others, like a consumer confidence index for example, the influence is less.
As some economies and currencies are very important, the associated economic indicators can generate a global impact. Thus, in addition to analysing the different types of indicators, it is recommended that they be read geographically, by country or currency area.
With this in mind, four regions deserve special attention :
- The United States of America
The USA is the world’s largest economy in terms of GDP, and the US dollar is considered a safe haven.
- The eurozone
With more than 340 million inhabitants in 2019, the euro area is a particularly important economic zone. The EUR/USD is the most traded currency pair in the world.
The Japanese economy ranks third in the world in terms of GDP. The Japanese yen (JPY) is one of the G3 currencies, the most widely traded currencies on the foreign exchange market.
- The United Kingdom
The sixth largest economy in the world in 2019, the United Kingdom and its pound sterling (GBP) have a major influence on the currency market.
Within these economic zones, a number of economic indicators are monitored closely by forex market participants. This leads us to ask, which indicators should we pay particular attention to?
Which indicators to follow for the USA?
The United States remains the world’s largest economy and the US dollar is considered a safe haven.
Given its considerable influence, foreign exchange market players are very interested in indicators related to the U.S. economy.
Which US indicators deserve special attention?
- The Nonfarm Payrolls report
A monthly report that establishes the number of jobs created outside the agricultural sector.
- The ISM
A monthly index that monitors changes in the manufacturing sector and provides a measure of the expansion or recession of the economy.
- The Chicago PMI
An index similar to the ISM, covering the Midwest region only.
- Consumer Confidence
A consumer survey that reflects their impressions of the state of the economy and the outlook for households.
Main indicators in the United States
|The Nonfarm Payrolls report||Lagging||
|The ISM (Institute for Supply Management)||Coincident||
|Le Chicago PMI (Purchasing Managers Index)||Coincident||
|Consumer Confidence (Consumer Price Index)||Leading||
Which indicators to follow for the eurozone?
The euro area is home to a wide variety of economic models.
As Germany accounts for 30% of the euro area’s GDP, European indicators relate mainly to this country.
They are not wholly representative of the entire euro area’s economic performance, but they do provide an insight into the performance of the single currency.
Which euro area indicators deserve special attention?
- The IFO
German survey on companies’ current situations and economic prospects.
- The ZEW
A survey similar to the IFO, focusing solely on the banking sector.
- Euro area manufacturing PMI
Survey of euro area purchasing managers as a reflection of confidence.
- Euro area CPI
Monthly index offering a general overview of inflation in the euro area.
- CPI France
A monthly index similar to the Euro area CPI, but solely relating to France.
Main indicators in the eurozone
|L’IFO (Institut für Wirtschaftsforschung)||Leading||
|Le ZEW (Zentrum für europäische Wirtschaftsforschung)||Leading||
|Euro area manufacturing PMI (Purchasing Managers Index)||Coincident||
|Euro area CPI (consumer price index)||Leading||
Which indicators to follow for Japan?
In terms of GDP, Japan is the world’s third largest economy, despite a relatively low growth rate for an extended period.
Its currency, the yen (JPY), is part of the G3 currencies, the most traded in the world. Foreign exchange market players pay special attention to Japanese indicators.
Which Japanese indicators deserve special attention ?
- The Tankan Survey
A survey of private firms in the manufacturing sector conducted by the Bank of Japan, providing an indication of whether the economy is expanding or contracting.
- National CPI
Monthly survey of service sector businesses that assesses the outlook for this sector.
Main indicators in Japan
|Tankan Survey (Bank of Japan)||Coincident||
Which indicators to follow for the United Kingdom?
The United Kingdom is the world’s sixth largest economy in terms of GDP, behind India (2019).
The power of the pound sterling (GBP) on a global scale is considerable and British economic indicators can exert a significant influence.
Which UK indicators deserve special attention?
- Manufacuring PMI
A survey of private firms in the manufacturing sector reflecting this sector’s economic performance.
- Service sector PMI
Monthly survey of service sector companies that assesses the outlook for this sector.
Monthly index that measures inflation in the United Kingdom.
Retail Price Index.
Main indicators for the United Kingdom
|Manufacturing PMI (Purchasing Managers Index)||Coincident||
|CPI (Consumer Price Index)||Leading||
|RPI (Retail Price Index)||Coincident||
As you can see, each region has its own set of relevant indicators. The examples presented above provide an overview of the main indicators monitored internationally and make it possible to assess foreign exchange market developments likely to have an impact on corporate activity.
In order to ensure a fair analysis, two elements must be kept in mind. The type of indicator studied and the country or currency area to which it refers. Certain economies and currencies have a significant global influence. Economic indicators for these areas are very closely scrutinised by foreign exchange market participants. Fluctuations in the dollar or the euro will inevitably affect the value of less traded currencies. Any announcement or publication that may provoke such fluctuations deserves special attention, as the impact on business activities may be considerable.
In order to carry out a comprehensive analysis, a full economic calendar should be adhered to, marked throughout the year by all the major publications affecting international exchange rates.