Trading Currencies

In today’s markets one must understand the importance of economic indicators.

On a regular basis each country publishes different results, gauging the strength of various parts of the economy. These indicators tell traders whether the economy is continuing to grow at a steady pace, or if there is a current slowdown due to an economic contraction. Understanding the value of these results normally indicates to traders whether monetary measures need to be taken or not, in order to control the economy.

Monetary Policy- To keep economic growth under control, preventing inflation or hyperinflation, each central bank uses numerous tools to insure gradual growth or to stimulate it after economic slowdowns. One of the most common tools used in today’s economic cycles are interest rates.

During economic growth, increasing interest rates are used to offer consumers an alternative to their money. This attracts them to invest in higher yielding programs, therefore allowing central banks to control consumer consumption.

A Decrease of interest rates is often used to encourage consumption spending, making returns on savings less attractive.

One has to remember that by nature traders will always look for higher returns on their money, encouraging investors/traders to move their money from currency to currency according to interest rates differentials.