Monetary Policy

Monetary Policy: A central bank’s action plan aimed at regulating the supply of money. Its tools include interest rates, reserve ratio requirements, and the printing of money. Monetary policy should not be confused with a government’s fiscal policy, which determines how the money at its disposal is accrued and used.

Economic Indicators

Economic Indicators

In this video you will learn about re-occurring monthly and quarterly Government issued economic reports,

These pre-scheduled releases may cause a significant short term and possibly longer term change in the news country’s exchange rates and sometimes other county’s exchange rates as well.

This group is known as “number trades” because the market focuses exclusively on one or two numbers contained in the report, though the report itself could be many pages long.

The key scheduled “number trade” economic reports that move the market the most are:

    1. GDP

    2. Employment

    3. Retail sales

    4. Consumer price index

Let’s begin with a brief explanation of what each of these key economic reports is about and also take a look at what these reports actually look like

GDP (Gross Domestic Productivity)

The GDP Quarterly report indicates how the entire economy is doing. Traders focus on a single number, the quarterly percentage change from the same 3 month period a year earlier. For example the US GDP number comes from this long report.

It is necessary to read this full report you will get the number from the economic calendar on your trading platform

Employment

Monthly report of job growth (or loss) and the unemployment rate provides strong clues of how the economy is doing.

Traders focus primarily on the net number of jobs created (or lost)

Retail sales

Monthly report shows if people are spending money on everyday items; it is a key indicator of economic strength or weakness and savvy traders pay attention to it.

Traders once again focus on a single number, though the report itself is several pages long

Consumer price index

Monthly report that keeps tabs on inflation (and deflation).

All Government’s keep a close eye on inflation and deflation and they do everything they can to keep inflation low and stable at around 2%.

This reports lets traders know how well the Governments are doing.

And once again, traders zero in on a single number.

Common characteristics of all four scheduled economic reports

  • The release dates and times are known months in advance.

  • Government reports; they are released precisely on time

  • Traders focus on a single number contained in the report

  • This number can have a significant impact

Savvy traders are aware of these reports and act on the information

So what have you learned

That there are four main “numbers trade reports” issued either monthly or quarterly that will impact on exchange rates

  • GDP

  • Employment

  • Retail sales

  • Consumer price index

Traders focus on a single number contained in these reports and will adapt their trading strategy based on these numbers