The GDP (Gross Domestic Product) report is eagerly awaited by anyone seriously involved in the stock market or foreign exchange. Investors, analysts and currency brokers like us at Pure FX review these reports, to see how they will affect trading. In fact it benefits anyone who is regularly involved in commercial decisions to keep up-to-date.
The GDP is a summary indicator of economic activity in a country and affects the currency exchange market. Other indicators include the employment report and the consumer price index (CPI.) Anyone who watches Bloomberg News regularly – or at all, in fact – will hear these terms in constant use. Bloomberg is a wonderful tool for those with an interest in business and finance.
However, many casual observers don’t have a clue what those newscasters are on about! So what is the GDP, and how does it affect foreign currency trading? Briefly, the GDP is a quarterly report measuring economic growth. Thus you have the US GDP, the China GDP and, of course, the GB GDP. To be healthy, an economy must be growing at a steady rate.
Various approaches are used in the UK to estimate GDP. The output approach, GDP (O), the expenditure approach GDP (E) and the income approach GDP (I). From these figures the total value of all goods, services and utilities made or sold is calculated.
We at Pure FX look closely at the GDP report when it is released, since it can have a strong impact on the foreign currency market. Although a positive report can look encouraging, it can be subject to revisions, which can cause price movements on the foreign exchange services.