Economic Factors Affecting EURUSD

Trading in the EUR/USD pair can often involve watching the different economic releases and other news that affect the rate. Major economic releases exert an enormous amount of influence on the direction of the exchange rate and are constantly monitored by traders to get indications on direction.

For interest rates and other economic factors release dates consult the economic calendar.

Interest Rates: The Most Important Indicator

The most important economic indicator that influences the EUR/USD exchange rate consists of interest rates. The benchmark Fed Funds rate set by the United States Federal Reserve or the Fed and the European benchmark Minimum Bid Rate set by the European Central Bank or ECB make up the most important fundamental element in the valuation of EURUSD. The ECB releases their interest rate monthly, while the Federal Reserve releases the Fed Funds rate eight times per year.

The ECB releases the Minimum Bid Rate early in the month, typically in the first or second week. Generally, the rate is already priced into the market, with many analysts already aware of either a rate hike or cut before the announcement. The focus of the ECB’s rate announcement tends to be the ECB Press Conference which takes place 45 minutes after the rate release.

In the Press Conference, the rate decision is explained by the ECB President who generally gives indications of future monetary policy decisions and further direction on rates. The decision on Eurozone rates is made by the six members of the ECB Executive Board and the 16 Eurozone area central banks, who vote on where the rate will be set. The voting is not divulged to the public.

The Federal Reserve for its part releases the Fed Funds rate at any given time of the month, releasing the rate with the Federal Open Market Committee or FOMC Statement after the rate release. As with the ECB rate, the Fed Funds rate is often already priced into the market with the focus on the FOMC rate statement.

The rate statements from the central banks are said to be either “hawkish” indicating further rate tightening, or “dovish”, indicating rates will be looser making credit easier to obtain. The effect this has on the EUR/USD rate consists of the fact that higher rates make a nation’s currency more attractive to international investors.

Employment Numbers

After interest rates, employment numbers are of significant importance to EUR/USD analysis. The importance of employment in an economy cannot be understated. In U.S. numbers, the monthly release of the Non-Farm Employment Change released by the Bureau of Labor Statistics on the first Friday after the end of the month makes up one of the most important releases in the forex market. Other important U.S. employment numbers include Initial Jobless Claims which come out every Thursday.

Important employment numbers for the Eurozone consist of the Employment numbers for the Eurozone’s major economies such as Germany and France, as well as the consolidated numbers for the Eurozone.

Other Important Economic Releases

In addition to interest rates and employment, other economic releases have considerable influence on the EUR/USD rate:

Gross Domestic Product – The yearly change in the value of all goods and services produced in an economy.

Trade Balance – The difference in the value of all imports and exports of an economy, a surplus indicates more exports while a deficit indicates more imports.

Retail Sales, Consumer Price and Producer Price Indexes – These indicators all measure inflationary pressures in an economy and will influence central bank monetary policy and interest rates.

Sentiment Indicators – Sentiment surveys such as the German ZEW Economic Sentiment or the University of Michigan Consumer Sentiment Indicator give traders indications on the overall perceptions of an economy’s strength and can influence the market considerably.

Fundamental factors important to EUR/USD analysis also include international news. Riots in Greece or a U.S. debt downgrade for example can have a significant effect on the pair’s exchange rate.