News Events that Influence the Forex Market
The UK economy is one of the largest globally, and as such, it has a significant influence on the Foreign Exchange market. In turn, what happens to the UK economy can be heavily influenced by Forex actors – both domestically and abroad – which significantly affect how Forex traders react to news events that affect this area of economic activity..
Forex news events typically fall into two categories: those released from the Bank of England and those from government figures, agencies, or other institutions.
Announcements Released From the Bank of England
The Monetary Policy Committee (MPC)
MPC reports every six weeks on inflation forecasts via its Inflation Report. These inflation forecast projections will include expected interest rate movements and changes to growth and productivity forecasts.
The Bank of England’s Financial Policy Committee
Weekly Liquidity Reports are issued, highlighting any changes in liquidity or funding conditions that could impact financial stability. The report does not seek to set out a new policy but rather provide market participants information.
The Financial Policy Committee also makes announcements about systemic risks to the financial system as part of its role of maintaining financial stability. These reports are released every quarter via its Financial Stability Report, with each one focusing on different macroeconomic threats.
Several reports are issued throughout the year reflecting national accounts figures, including Gross Domestic Product (GDP), Retail Price Index (RPI) and Retail Price Index – All Items (RPI-X) figures.
External Factors that Have an Effect on UK Forex News Events
In Europe particularly – these events can have a significant effect on sentiment towards UK economic data. If things are going well elsewhere, it will generally positively impact sentiment toward UK data releases as it creates additional demand for pounds sterling against other currencies. Still, if there is terrible news abroad, this could cause pressure on sterling as traders seek to cover their short positions by selling pounds.
The Eurozone Crisis
This crisis remains one of the most significant issues for traders, with any signs that Germany might end up bailing out struggling countries likely to trigger negative sentiment toward the pound.
A weak Eurozone will generally be good for the economy, meaning traders tend to buy more pounds when these reports come out. On the other hand, a strong euro is likely to put downward pressure on the currency and could trigger profit-taking or short-covering if one of these reports shows that economic growth in Europe has declined.
Political announcements such as a change of government or statements from party leaders can create uncertainty and risk-off sentiment among market participants. These events can make people less willing to take trading positions that rely heavily on UK data releases. Still, often volatility tends to increase within this time because politicians may try and influence markets through their comments. For example, they could try and talk up a weakness in sterling by making positive comments about the economy or talk up price growth to win support from voters.
Situations in Other Countries
The Middle East/North Africa situation also influences sentiment among traders, with significant events there having a knock-on effect on trading. For example, if Israel attacks Iran, this could impact the pound because of reduced risk appetite by traders. At the same time, any signs that tensions are easing would likely push sterling higher as confidence starts to return.
Forex news events are significant for all traders by influencing currency prices. The UK economy is certainly not independent from foreign affairs as the forex market might be affected by many other factors other than only domestic ones. That’s why FX traders pay attention to potential upcoming news releases.
The UK economic calendar is exceptionally well-suited to the needs of traders by providing regular releases throughout the week. Still, it does not provide all the information needed for successful trading. The critical thing for Forex market participants is to use it in combination with other data sources, both domestic and abroad. You can find more of an explanation about this here.