THE LINK BETWEEN ECONOMIC INDICATORS AND EXCHANGE RATES

Interest rates is one of important factors affecting a country’s currency prices. Example: European Central Bank (ECB) holds interest rates steady, as the US Federal Reserve (FED) increases the interest rates the American dollar rises and EUR/USD currency pair decreases.

 Similarly, as the TCMB reduces the interest rates, depreciation of Turkish lira causes an upward movement in the USD/TRY currency pair.

Changes in GDP are the important macroeconomic indicative of a country’s development or decline. The growth in GDP in a country means an increase of its monetary value while the decline expresses a loss of value of the country’s monetary unit. 

Example: 

In the United States, the growth in GDP compared to its previous annual figure, may cause an increase in the value of the US dollar and lead to a depreciation of euro in the EUR/USD currency pair.

Unemployment rate is an important indicator of economic trend therefore any changes directly affect the value of a currency. Example: In the United States, a decrease in the unemployment rate compared to its previous annual figure, may cause an increase in the value of the US dollar while a rise in unemployment will lead to a depreciation of the USD. 

In the period of a high unemployment rate in the United States an upward movement can be seen in the EUR/USD currency pair.