When trying to understand what data points drive currencies here’s what you want to focus on:
Are these the only data points that matter when looking at currency markets?
No.
But when you look at the FX market the majority of the trends will be a result of real growth and interest rate differentials. Now if you’re really going into the minute details then things such as BoP (Balance of payments), current accounts and debt vulnerabilities really matter. Just a few metrics that the senior economist used to look at during my time at an EM fixed-income research house.
Luckily we don’t need to go into such detail.
For the majority of us, having a clear idea of how interest rate differentials, monetary policy tools, and economic health (real GDP growth) influence currencies is more than enough to get the fundamental basics of macro trends in FX.
Let me share some data points that are personal favourites in understanding how tight/loose economic conditions are and some data points for analysing the macro landscape.
But before I do, I came across this visual of the relevance of macro in each different trading strategy.
Regardless of the strategy you may be using one thing is clear, having an understanding of how interest rates, CPI, ISM or any other data point only adds an edge to your ability to understand what is driving markets.
I’m not here to tell you how to use it, but rather to show you a different perspective you probably haven’t seen.
Don’t take my word for it, take it from professional money managers: