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FOREX ECONOMIC INDICATOR:UNEMPLOYMENT RATE

Economic events play a vital role in determining the trends of forex pairs. Unemployment rate is one of the major economic indicators that are responsible for the forex trends. According to the definition of Investopedia, unemployment rate is the percentage of jobless worker, who are willing to work and continuously seeking jobs.

Source: citytowninfo.com

The importance of a economic indicators is greatly depends on the relationship between the indicator and long term interest expectation.By reading this post you will know the answer of the following questions:
  • How does unemployment rate affect the value of a currency?
  • How does unemployment rate affect the interest expectation?
  • How to understand the forex trend with unemployment rate?
Unemployment rate itself is a negative indicator, that means if the unemployment rate of an economy increases, the currency value of that economy decreases. On the other hand, if the unemployment rate of an economy decreases, the currency value of that economy increases. 

For example in case of EUR/USD currency pair, where EUR is a base currency and USD is a counter currency. If the unemployment rate of Euro Zone or a single country of the zone increases the pair will show a bearish trend. On the other hand, if the unemployment rate of USA increases the pair will show a bullish trend. 

So, an increase of the unemployment rate of the economy of base currency will trend the currency pair down, and a decrease will show a up trend. But if the unemployment rate of the economy of counter currency increases, the pair will show a bullish trend, and if decreases, the pair will show a bullish trend.

An increase of unemployment rate of an economy is negative for the currency value of that economy. This is because, if the unemployment rate increases, the income of the people of that economy decreases. As income decreases, the expenditure also decreases. When the expenditure decreases the inflation rate of the economy decreases. If the inflation rate decreases, the long term/short term interest rate expectation also decreases. Interest rate is the most important economic indicator that determines the trend of a currency pair. 

Dear Friends, hope reading this short post, you will be able to understand the relationship between unemployment rate and interest rate expectation. If you want to receive the updates of this blog, you can subscribe by email or follow me on social communities, specially Google Plus.