07/09/ · One of the fundamental indicators of forex trading is the balance of payments which can be said as a summary of transactions carried out by residents of a country with residents of other countries for a certain period of time which is usually calculated within one year. Balance of payments includes the purchase and sale of goods and services, grants from individuals and foreign governments Estimated Reading Time: 3 mins 08/03/ · It is a useful indicator for forex traders due to its aforementioned effect on monetary policy and, in turn, interest rates, which have a direct impact on currency blogger.comted Reading Time: 5 mins 10/04/ · Chapter 6: Factors that Affect the Forex Market. Like most commodities, demand and supply forces in the market influence currency prices. These forces, in turn, are influenced by many factors which increase demand at times and supply at others, causing the currency values to fluctuate. There are several factors which influence forex prices in this blogger.comted Reading Time: 9 mins
What Influences Forex Pricing?
The portion of How government current account affect forex prices that is allocated to Government Spending can primarily set the pace of economic growth. Increased Government Spending has been a critical lever to stimulate the economy during times of recession.
Government Spending numbers also determine whether the Government is elected by people next time or not. Hence, Government Spending numbers also can help or hurt the Government in elections. Thus, this can be considered a critical macroeconomic indicator for economists, analysts to predict upcoming trends. The Government Consumption Expenditures and Gross Investment are together, forming what is called Government Spending in general.
Both of these are the final expenditures accounted for by the governing sector. Government Consumption Expenditures contains Spending by the governing body to produce and provide goods and services to the public. Expenditures would typically include National Defense and Public School Educations, etc. Gross Investments includes the Spending by Government for fixed assets that directly benefit the general public.
Investments can consist of road construction, public transports, or procuring military equipment. Hence, overall Government Spending refers to the money spent on the acquisition of goods and services such as education, how government current account affect forex prices, health, social protection, and defense.
When the Government procures products and services for current use to directly benefit an individual or collective requirements of the community, it is called Government final consumption spending. When the same is done for future use, it is classified as Government investment.
Government Spending assists businesses and people economically in many ways. Unemployment compensation, Child Nutrition, Student Loans, retirement and disability programs, etc. During the time of recession or economic contractions, the Government increases its Spending and decreasing tax rates to stimulate the economy and vice-versa. Mandatory Programs: In the United States, necessary programs like Social Security, Medicaid, and Medicare make up about two-thirds of federal expenses.
As more baby-boomers reach retirement age, the increase in all the above costs puts weight on Government that affects its spending capability. These kinds of payments where there is no exchange of goods and services in return are classified as Transfer Payments Spending. National Debt and Interest bills: The United States currently has a record-high debt level of 22 trillion US dollars, which, when taken as a percentage of GDP, exceeds a hundred percent.
What this means is that the National Debt is greater than the revenue it generates. Even if the entire GDP were allocated to service debt hypothetically, it would still not suffice. Such skyrocketed debt levels have put the country in between a rock and a hard place. The United States must keep the interest rates low to be able to continue paying its interests to avoid the risk of default.
Defaulting on the debt could be catastrophic for the nation and can lead to economic collapse. Increased deficit spending Spending beyond budget to stimulate the economy during times of recessions and bearing expenses of war and international contingency operations all have piled on the debt burden further. Discretionary Spending: For the above two categories, how government current account affect forex prices, the Government has no choice but to spend, but Discretionary Spending is for everything else.
The Government decides how much money is to allocate to programs. Cutting back majorly on these can hurt the governing bodies in the next elections. Increased Discretionary Spendings can help in the short-run, but in the long run, all these will catch up, and consequences can be severe. GDP: The revenue itself is an essential factor; decreased GDP rates can create deflationary situations that the Government tries to avoid in all conditions.
Increased productivity and stimulations that result in higher prints in GDP can help service debts and how government current account affect forex prices have enough resources to spend on economic activities freely.
Increased taxes can help build up revenue for the Government but can lead to losing elections as the public might vote them out for imposing higher taxes. The Governments have increasingly relied on deficit spending to boost economic growth as indicative of the below graph.
By relative comparison with previous years, what policymakers have decided to spend on can determine many local level and national level economic impacts.
Cutting back on certain sections can lead to slowdowns in that sector and vice-versa. Investors how government current account affect forex prices Economists use this to predict economic trends. In general, a relative increase in Government Spending is good for the economy. This indicator is typically expressed as a percentage of GDP, signifying how many portions of the total revenue Government has prioritized over debt servicing to stimulate growth.
When the economy is growing at a faster pace than the targeted rate, the Government can cut back on Spending and service their debts, or increase taxes to stabilize and vice-versa. In this sense, Government Spending is a proportional indicator, how government current account affect forex prices, the more, the better for the economy. It is a lagging indicator, as it is usually reactionary to situations in the marketplace and not an initiative effort. Government Spending is a lever used generally to fix an issue that already has happened hyperinflation or deflationhence has a lower impact on the long-term market volatility how government current account affect forex prices the world of trading markets, although there may be some panic trading due to press releases.
The Bureau of Economic Analysis releases quarterly reports on Government Receipts and Expenditures, which contains the Spending on different sectors, on their official website. The Organisation for Economic Co-operation and Development also releases quarterly estimates of the associated countries on their official websites under the category of General Government Spending in two varieties: Government Spending per Capita and Government Spending as a percentage of its GDP.
The United States Bureau of Economic Analysis reports are available here :. The General Government Spending details are available for OECD countries on their official website here.
Quarterly Government Spending reports of the United States Government can be found here categorically. Below is a comparative index for countries — Government Spending as a percentage of GDP, how government current account affect forex prices.
Government Spending as a percentage of GDP — Trading Economics. We understood in the previous section of the article that Government Spending refers to the money spent by the public sector for purchasing goods and providing essential services such as education, healthcare, social protection, and security, how government current account affect forex prices.
The two major categories of Spending include Current Spending and Capital Spending. Government Spending ensures that the country is having basic facilities such as roads, bridges, hospitals, how government current account affect forex prices, schools, and other allowances such as unemployment and disability benefits.
Hence public sector spending plays a crucial part in the economic growth of a country. If Government Spending of a country is high, it also attracts foreign investment and other capital flows. Thus, the greater the Government spends, the greater will be the growth of the currency. Today we will be discussing the impact of the news release on various currency pairs and how government current account affect forex prices the change in volatility before and after the release.
For this, we have collected the latest Government Spending data of Australia, where the below image shows the quarter-on-quarter numbers of the same. The latest figures show an increase in Government Spending for the December quarter compared to the previous quarter.
Looking at the chart above, we can say that the market reacted positively to the news announcement and the price closed as a bullish candle. The bullishness in currency is due to the encouraging Government Spending data, which showed an increase in expenditure from the previous quarter. Since the Australian dollar is on the right-hand side, a downtrend shows strength in the currency.
After the numbers are released, volatility increases on the downside, and the price closes as a bearish candle, indicating selling pressure in the market. This is due to better than expected Government Spending data, which was higher than last time, how government current account affect forex prices, and thus the market suddenly goes lower. This means we could expect sellers to become active at this point.
However, the reaction depends on the Government Spending data, which can cause spikes on either side of the market. After the news is announced, we witness a similar impact where the price goes higher and closes as a bullish candle.
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Balance of payments: Current account - Foreign exchange and trade - Macroeconomics - Khan Academy
, time: 6:29The CPI and Forex: How CPI Data Affects Currency Prices
Being familiar with and understanding the way interest rates and government bond markets affect currency valuations is very important, and such factors are closely monitored by experienced forex traders to determine longer term trends. Fluctuations in U.S. Treasuries — especially U.S. Treasury bond yields — are one of the prime valuation factors behind U.S. Dollar movements that many novice Estimated Reading Time: 11 mins 08/03/ · It is a useful indicator for forex traders due to its aforementioned effect on monetary policy and, in turn, interest rates, which have a direct impact on currency blogger.comted Reading Time: 5 mins The overall performance of governments, and especially changes in the level of borrowing of a government, influences currency markets, and can influence them quite a bit. This is especially the case when there is perceived instability with a country, which can be either economic or blogger.comted Reading Time: 9 mins
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