Fundamental analysis is the evaluation of economic factors that surround a security when investing in them, and it is essential when one participates in online forex trading. Conducting thorough fundamental analysis can help traders gain insight into the markets and how they may move, and, combining it with technical analysis, which is the process of trend and pattern-spotting by looking at price charts, traders can make the most of their trades.

In this article, we will look at what economic releases are, as well as the six main ones in the UK forex traders should look out for. We will also explore how you can interpret these releases and the impact they have on the forex market, and in particular the British pound. If you are keen to learn more about forex trading and to know more about how you can improve your fundamental analysis skills, read on.

What are economic releases?

In the financial markets, economic releases refer to scheduled publications of economic data by various government agencies and private organisations. These data releases provide valuable insights into the health of the economy and can have a significant impact on financial markets, especially the currency markets. This is why all traders keep an eye on them.

In fact, this can be done through tracking the economic calendar, which is a tool that many brokerages, banks, and financial institutions provide for their clientele. The economic calendar allows traders to see major economic and financial releases and events around the world, such as the day the US releases their non-farm payroll or unemployment numbers, or when the UK releases their GDP figure.

The main economic releases in the UK

In the UK, there are six major economic releases that come out throughout the year, per quarter, biannually, or annually. They are figures for the nation’s GDP (Gross Domestic Product), its Consumer Price Index (CPI), its Producer Price Index (PPI), its Purchasing Managers’ Index (PMI), retail sales, and unemployment rate.

Gross Domestic Product (GDP)

A nation’s Gross Domestic Product (GDP) is a measure of the total value of all goods and services produced in its economy. The UK Office for National Statistics (ONS) releases these figures quarterly and they provide a comprehensive view of the health of the economy.

The release of GDP figures can have a significant impact on the value of the British pound in the forex market. If the GDP growth rate is higher than expected, it can lead to an increase in demand for the pound as investors see the UK’s economy as strong and healthy, which can push the pound’s value up. Conversely, if the GDP growth rate is lower than expected, it can lead to a decrease in demand for the pound, causing its value to decline.

Overall, GDP is an important indicator for forex traders to monitor as it can provide insight into the strength and health of a country’s economy, and it can help traders make informed trading decisions based on the expected impact on currency values.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is another essential economic factor that forex traders should look at. The CPI measures the change in the price of goods and services purchased by households. The ONS releases the figures around the middle of each month.

The CPI can affect the Bank of England’s monetary policy decisions, such as changes to interest rates. When CPI figures are higher than expected, it may lead to speculation of a potential interest rate increase, which can result in a strengthening of the British pound. Conversely, if CPI figures are lower than expected, it may suggest the economy is weaker than anticipated, potentially leading to a weakening of the pound.

It is worth noting that the Bank of England has a target inflation rate of 2%. If CPI figures remain consistently above or below this level, it can create a prolonged impact on the value of the pound in the forex market.

Producer Price Index (PPI)

The Producer Price Index (PPI) measures the change in the price of goods and services at the producer level. The ONS releases the figures monthly.

The PPI can provide an indication of inflationary pressure in the economy, as changes in producer prices may be passed on to consumers. In addition, the PPI can also reflect changes in the cost of production for UK businesses, which can have an impact on profitability and ultimately on the national economy.

In terms of its impact on the British pound in the forex market, an unexpected increase in PPI can lead to expectations of higher inflation and interest rates, which may lead to a strengthening of the pound. Conversely, a decrease in PPI can lead to expectations of lower inflation and interest rates, which may lead to a weakening of the pound.

Purchasing Managers’ Index (PMI)

The Purchasing Managers’ Index (PMI) is a survey-based indicator that measures the health of the manufacturing and services sectors. It is a composite index based on five major indicators: new orders, production, employment, supplier deliveries, and inventory levels. The PMI’s monthly release can provide an early indication of economic trends.

A reading above 50 indicates that the sector is expanding, while a reading below 50 suggests contraction. As such, a high PMI figure is generally seen as positive for the country’s currency, while a low PMI figure is seen as negative.

In relation to the forex market, a better-than-expected PMI figure can lead to an increase in the value of the British pound, as it signals a stronger economy and increased demand for the currency. Conversely, a worse-than-expected PMI figure can lead to a decrease in the value of the British pound, as it indicates a weaker economy and decreased demand for the currency.

Retail sales

Retail Sales measure the change in the total value of sales at the retail level. The ONS releases the figures monthly, and they provide insights into consumer spending patterns and overall economic activity in the nation.

When retail sales figures are higher than expected, that is generally a positive sign for the economy and may lead to an increase in the value of the British pound. Conversely, if the retail sales figures are lower than expected, that may lead to a decrease in the value of the British pound.

Unemployment rate

Finally, the Unemployment Rate of a nation measures the percentage of their labour force that is unemployed. In the UK, the ONS releases this data every month, and it can provide insights into the health of the national labour market.

Generally, a lower unemployment rate indicates a healthier economy and can lead to an increase in the value of the currency. This is because lower unemployment typically means more people are employed, leading to higher consumer spending and economic growth. On the other hand, a higher unemployment rate can signal a weaker economy, which can cause investors to harbour concern and potentially sell off their pounds.

The bottom line

Traders and investors closely follow these economic releases as they can have a significant impact on financial markets, in particular forex. By understanding the potential impact of economic releases, forex traders can make more informed trading decisions. However, analysing these releases alone is not sufficient, and many traders prefer to use them in conjunction with technical and sentiment analysis to get the full picture of where the financial markets are heading. On top of that, forex traders should ensure they have the proper risk management strategies in place when they trade, no matter how confident they may be in their positions.