There are different economic indicators that affect the currency of a country and in essence its economy. Unemployment rate is one of the indicators that can either lead to an increase or decrease in the value of a currency. This means that the release of economic indicators by the body which is charged with the role of managing a country statistics have an important bearing on the currency trade.
Different economies usually release employment report regularly, for example in United States of America, this is usually done on the first Friday of the month at 8:30 Am Eastern Time. In this report which the Federal Bureau of Labor Statistics calls Employment Situation Report, clearly stipulates the rate of unemployment in the previous month, the changes that have taken places as well as other host of labor statistics. This economic indicator is usually generated from the surveys which are taken in different regions of the country.
Why unemployment rate matters in an economy
Majority of the citizens in a country usually source their personal income from employment, therefore it has a major influence on how people spend as well as the general economic growth. This means that unemployment rate which in economic terms is considered a lagging indicator can give considerable information on the performance of an economy. It can be also a good source of information as far as the health of a given sector of an economy is concerned. For example when a country has a high rate of unemployment, the general indication that can be derived here is that the economy is not performing well or its Gross Domestic Product is falling. This gives a clear indication on how the national currency will perform in relation to the other currencies. On the other hand when the economic indicators show that the level of unemployment is falling, signs of an economic expanding or picking up are clear, this will normally have a positive effect on the country’s currency.
In an economy, the unemployment rate basically gives the percentage of the labor force which is not working or is seeking employment. Although there are different definitions of unemployment, the economist usually considers the number of people who are willing to work but have not secured employment in a given time. While computing the unemployment rate, statisticians do not consider those who are not of age as well as those who have the capacity to work but have voluntary opted to be out of employment for various reasons.
When an economic report comes out and the low unemployment levels are reported, the impression created to the investors is that the economy of a given nation is performing well. Such kind of an economy is worth investing, this eventually leads to a rise in the value of the currency .making it a good bargain for the Forex trader. On the other hand when the report gives a high unemployment level the investors will perceive the economy as weak leading to exodus of investment to economies which are performing better. This will eventually lead to depreciation of the currency.
With the Forex economic indicator such as unemployment rate, traders are in a better position to make sound decision as far as buying and selling of the currency is concerned. They will know when to hold on to currency stock and when to exit the market to avoid heavy losses.
An economic indicator calendar can be an effective tool in helping the trader to anticipate the release of the information and be ready for the change that will be brought through the release of a given indicator