Financial News

Forex Volatility: How Business and Financial News Affect Markets

As with other asset classes, price action can become particularly volatile with forex news before and after major news events. However, there are significant differences between the different news types that affect currencies and stocks.​

Currency markets tend to react most clearly to the “big picture” or macro news on investing trading – those developments that reflect or affect larger economies. In general, forex traders look to economic news to gauge its impact on interest rates and monetary policy. News that suggests a rather tough foreign policy stance from a central bank tends to pull a currency’s value higher against other currencies, while dovish news can push a currency lower.

Forex traders typically pay attention to certain key economic news items that may affect interest rate speculation. These include:

Central bank decisions and statements (e.g. the  Fed )

Information on gross domestic product (GDP)

Labor market numbers

Inflation rates

Trade balances

The release of messages of this type is planned in advance and disseminated widely. News reports are usually made at a specific time. US labor market data (nonfarm payrolls) are usually released on the first Friday of each month at 2:30 p.m. (CET).

Market Sentiment and Forex Trading

News related to market sentiment can also affect currencies, particularly those considered safe havens such as gold, silver, USD, JPY, and CHF. As a rule, these currencies attract capital during turbulent times, which flows out again when the market has calmed down.

News that can affect trading with increasing and decreasing risk includes stock market returns and volatility, financial stresses at the national or continental level, political unrest, elections, contract negotiations, and other general news apart from economic data and central banks. Recent examples include the debt crisis in Greece and the market turmoil in China.

How Do Commodity Prices Affect Currencies?

The currencies of countries with significant commodity exports can be affected by news that affects the prices of the main commodities they produce. These currencies are often referred to as resource currencies. The prices of commodities affecting these currencies may be affected by supply and demand issues.

On the supply side, news suggesting weak supply can pull prices higher, while news suggesting higher supply can push prices down, which in turn can impact related currencies. News about changes in supply may include news about political tensions, wars, terrorism, weather, economic sanctions, industrial relations (eg, strikes), and others.

Demand speculation and pricing are primarily influenced by the same big news stories already mentioned, as well as commodity inventory reports and forecasts.

Traders should be aware that the demand for many commodities – and therefore their commodity prices – rises and falls with the seasons. Seasonal news and impacts are mostly seen in commodities in the energy and agriculture sectors, but less so in metals. 

Company News and Currency Rates

News that has a large impact on individual company stocks  generally does not have a large impact on currencies. Stock market news that has little or no impact on currencies includes earnings reports, management changes, mergers and acquisitions and their associated rumors, partnerships, and others.

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