> Monetary Policy and Interest Rates:

An expansionary policy aimed at increasing economic growth and expanding economic activity. The monetary authority often lowers the interest rates through various measures, businesses and individuals can secure loans on convenient terms, financial and capital assets in the country tend to become less appealing > demand for currency lower> exchange rate to fall.

By implementing a restrictive policy, the central bank increases real interest rates > higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates > demand for currency higher >  attract foreign capital and cause the exchange rate to rise.

In addition to direct influence over the money supply and bank lending environment, central banks have a powerful tool in their ability to shape market expectations by their public announcements about the central bank’s own future policies. Central bank statements and policy announcements move markets, and investors who guess right about what the central banks will do can profit handsomely.

> Central Bank Monetary Policy Report (or Outlook Report), Rate Statement, Overnight Rate

The Monetary Policy Report provides valuable insight into the bank’s view of economic conditions and inflation, factors based on which the monetary policy will take shape, and influencers of interest rate decisions.

The Central Bank’s Governing Council members come to a consensus on where to set the rate. The Overnight Rate is the interest rate at which major financial institutions borrow and lend overnight funds between themselves. The Rate Statement contains the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision.

ECB: The 6 members of the ECB Executive Board and 15 of the 19 governors of the Euro area central banks vote on where to set the rate, via rotation. Also called Main Refinancing Rate, , Refi Rate, Repo Rate, Minimum Bid Rate

Released quarterly.

Source: Central Banks

> Raw Interest rate decisions from Central Banks example. These data are publicly available from various sources. 

> FOMC Meeting Minutes

It’s a detailed record of the FOMC’s most recent meeting, providing in-depth insights into the economic and financial conditions that influenced their vote on where to set interest rates.

The Federal Open Market Committee (FOMC) consists of twelve members–the seven members of the Board of Governors of the Federal Reserve System. The committee within the Federal Reserve System is charged under United States law with overseeing the nation’s open market operations, makes key decisions about interest rates and the growth of the United States money supply.

FOMC minutes can be viewed on the Board’s website at http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.

Usual Source: Federal Reserve

> Crude Oil Inventories 

Change in the number of barrels of crude oil held in inventory by US commercial firms. There is a weekly release of these data. When oil inventories go up, traders respond by selling their positions since it seems demand has fallen, causing a price retreat. When oil inventories decline, traders see this as a signal that demand is increasing, and they may buy oil, bidding up prices.

Crude oil is quoted in U.S. dollars (USD) so pricing changes have an immediate impact on related crosses. The USD benefits from crude oil’s price decline since the energy sector is a significant contributor to U.S. GDP. In addition, fundamentals suggest that a fall in oil prices should be accompanied by a real depreciation of oil exporters.

Source: U.S. Energy Information Administration (EIA);

> Trade Balance

The difference in value between imported and exported goods and services during the reported month. Export demand and currency demand are directly linked since foreigners must buy the domestic currency to pay for the nation’s exports. Export demand also impacts production and prices at domestic manufacturers.

A country that exports more goods and services than it imports has a trade surplus or a positive trade balance and it will have more demand for its currency.

Usual Source: Bureau of Economic Analysis

> PMIs (Purchasing Managers Index)

Purchasing managers’ index is an economic indicator derived from monthly surveys of private sector companies. It is an index of the prevailing direction of economic trends in the manufacturing and service sectors. Used for decision making such as production decisions, estimation of future demand, and so on. Investors can use the PMI to their advantage because it is a leading indicator of economic conditions. The survey involves hundreds of purchasing managers. It asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories. It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. 

Above 50.0 indicates industry expansion, below indicates contraction. 

Usual source: IHS Markit

> Core Retail Sales and Retail Sales

This is the change in the total value of sales at the retail level. Core Retail Sales excludes automobiles. These data are thought to be vital consumer spending data accounting of the overall economic activity.

They are released monthly.

Usual source: U.S. Census Bureau

> Employment Change – Non-Farm Employment Change (for the U.S. Bureau of Labor Statistics).

Change in the number of employed people during the previous month. (BLS excludes the farming industry).

The higher the number the better as more people find work. It is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity. Naturally, people would be more willing to spend if they were employed, and vice versa.

Also called Non-Farm Payrolls or NFP. Released monthly, usually on the first Friday after the month ends;

Usual source: National statistical office

> Unemployment Claims

The number of individuals who filed for unemployment insurance for the first time during the past week. The number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions and, of course, is a major consideration for policy decisions. 

Released weekly

Usual source: Department of Labor

> Unemployment Rate

Percentage of the total workforce that is unemployed and actively seeking employment during the previous month. The number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions. Also monetary policymakers take it heavily into consideration.

Released monthly, usually on the first Friday after the month ends;

Usual source: National statistical office

> Cross Domestic Product (GDP) inflation-adjusted – Real GDP

The change in the inflation-adjusted value of all goods and services produced by the economy. The GDP q/q data release, it’s reported in an annualized format (quarterly change x4). There are 3 versions of GDP released a month apart – Advance, Preliminary, and Final. The Advance release is the earliest and thus tends to have the most impact.

It is an important measure of an economy’s output and actual growth of production. In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well.

Usual source: National statistical office

> Consumer Price Index (CPI) – Core CPI/CPI Ex Food and Energy, Underlying CPI

The change in the price of goods and services purchased by consumers. It is a measure of inflation. The higher the inflation rate, the more interest rates are likely to rise. This occurs because lenders will demand higher interest rates as compensation for the decrease in the purchasing power of the money they are paid in the future. Central Banks counter inflation by raising interest rates. This makes borrowing more expensive and slows down economic growth. Raising interest rates increases the demand for domestic currency,  leading to appreciation and a stronger exchange rate.

Usual source: National statistical office