The Retail Sales Index is a report that considers the sales of goods in the retail sector during the previous month. This is a monthly figure, which always refers to the previous month in which the Census Bureau and the Department of Commerce of United States issued the report. This report is compiled and issued approximately two weeks after the end of the month.
This index is based on data obtained from samples that are extrapolated to the entirety of the whole country.
The Real Interest Rate Differentials Model indicates that movements in the price of currencies are determined by the levels of interest rates of the countries. Thus, the currencies of countries with high-interest rates should grow in value while the opposite should happen with nations whose interest rates are low.
As we will see below, this model is not able to explain all the movements in the currency market, although much of what happens in the Forex (and in other financial markets) is related directly and indirectly to interest rates.
Whenever a country raises its interest rates, international investors discover that the currency of that nation has a higher yield and therefore these investors start buying the currency. This theory was very successful in 2003 when the spreads of interest rates were quite close to the highest levels of the past years.
Fundamental Analysis of the Forex Market Forex fundamental analysis is a type of market analysis that identifies and measures factors that determine the intrinsic value of financial instruments such as economic and political environment. It is included in the fundamental analysis any factor affecting supply and demand of the instrument traded. For example, a study of fundamental analysis for a … Read more
General definition The GDP or Gross Domestic Product is a report that includes the total value of all goods and services produced within a country in a given year, which is equal to the total of consumption, investment and government spending, plus the value of exports, minus the value of imports. The GDP report is disclosed at 8:30 am EST on the … Read more
We can define inflation as the general increase in prices of goods and services in connection with a currency at a specific time period. When the price of these resources increases, the purchasing power of the country’s monetary unit drops so the people of the country can buy fewer goods and services and this has an overall impact on the economy. In other words, this means that inflation causes the purchasing power of a currency to decline.
Inflation has a negative effect on all members of society regardless of their socioeconomic level, and obviously, it affects all consumers in the economy of a country, for this reason, is one of the most important economic indicators for Central Banks and investors of financial markets such as Forex.
Many economists believe that inflation can be positive if it has a moderate level. Meanwhile, central banks invest huge efforts to keep inflation within well-established limits, so that the economy of the country can take advantage of the positive aspects of inflation while at the same time the negative effects of it are minimized.
One of the main measures implemented to counter the inflationary pressure is rising interest rates. When interest rates rise, commercial banks proceed to increase the interest of the loans they make to their customers.
The Consumer Price Index or CPI is a measure that estimates the average price of consumer goods and services. The CPI measures the price change for a set of market goods and services from a fixed term until the next within the same area, be it a city, region or country. This is a monthly figure, which always refers to the previous month in which the Bureau of Labor Statistics issued the report.
The Bureau of Labor Statistics of the U.S. measures two kinds of CPI statistics:
Of the two types of CPI, it is considered that the latter is the most representative of the general population, accounting for 87% of the population of the country.
The reports are broken down by industry, which serves to eliminate the effects of a single volatile industry such as defense spending.
It consists of manipulating the currency to sell more. You lower the value of your country’s currency and artificially lower your products to make them more attractive in other countries and increase your exports.
How can a country manipulate its currency? There are many ways, but simplifying, the two main ones would be:
What is the interest rate? The interest rate is the rate paid by a borrower for the use of money borrowed from a lender. For example, a company (borrower) asks borrowed capital to a bank (lender) to buy new assets for their businesses, in exchange for lending money, the lender receives interest at a predetermined rate. The interest rate is … Read more