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The Impact Of The UK Economy On Foreign Currency Trading
GDP estimates are released quarterly, and are strong indicators of the UK economy. They are regularly updated and you can find the latest GDP results on Bloomberg News. Foreign exchange brokers use the information to decide how best to trade foreign currency for their clients – by using stop limit orders, for example.
For each quarter, three estimates are released. The first, or preliminary estimate, is based on output information and is published 3 – 4 weeks after the end of the quarter. The second estimate, output income and expenditure, is based on all available information and provides information on both the level of the GDP and its growth. It is released 8 weeks after the end of the quarter. The third estimate, the UK National Accounts, includes information on government expenditure and is published 12 weeks after the end of the quarter.
Foreign currency traders also keep a close eye on things like the employment report and CPI (Consumer Price Index), as these are important economic indicators. A strong economy may be reflected by positive foregin exchange rates, such as a strong pound, which leads to foreign investment, rising inflation and high interest rates. A weak economy causes a fall in the value of the pound as foreign investors may trade in their investments. It can also strengthen foreign currency values as investors purchase assets from outside the UK and transfer money overseas.
We at Pure FX watch the GDP report carefully when it’s published. Whipsaw movements, including sudden spikes in value, are common to begin with. By taking appropriate risk management steps, like stop limit orders, we can protect our clients’ profits.
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