When trading this currency pair, one of the most important things to consider is that the UK pound is mainly driven by fundamental factors. Thus, traders pay particular attention to the economic news coming out of Great Britain when making their trading decisions.
The specific economic reports that are seen to have the strongest effect on the pound include:
Inflation rate data
Countries that suffer from high prices see the value of their currencies erode. In addition, when a country suffers from high inflation, the central bank may choose to increase interest rates in order to deal with it. Inflation rates are calculated using consumer price index (CPI) data, which are released monthly by the Office of National Statistics. Traders also look at the Producer’s Price Index (PPI), which measures increases in the prices of raw materials.
As part of its mandate, the Bank of England, the UK central bank, is tasked to promote the stability of the pound, which it does by controlling inflation. The main way it does so is by changing the bank rate, or the interest rate that banks charge each other on balances that are held by the BOE.
Gross Domestic Product
The GDP measures the amount of goods and services produced by a country over a particular period and are released quarterly. It is important because it reflects the general level of its economic activity, which also impacts the strength of its currency.
Balance of Payments
This indicator records the international transactions a country has, with traders paying particular attention to the current account, which looks at the balance of trade as well as the flow of transfer and income payments. Trade balance figures are released monthly while BOP accounts are released quarterly.
Updated on 7. April 2020
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