Tariffs, wars, more tariffs. All you hear these days is the world! So, this is the best occasion to take this time and talk about the concept of economic news on the forex market. If you didn’t know this by now, then you certainly know now for sure how economic news can impact the financial markets. This is important to keep in mind when you want to think about how the forex market works and how to find the best opportunities for trading.
In this article, we are going to focus on how economic news can impact the forex market and more importantly, to show you how you can trade during such times.
Understanding the Relationship Between Economic News and Forex Markets
Our discussion today is about the factors that could influence the forex market. And when it comes to such factors, there is a sea of different factors that could do this. But economic news has a direct impact on the market. This makes such a phenomenon a bit easier to understand, as its impact is direct and readily measurable.
A perfect example are all the recent yaps that hear on the news about US tariffs on other countries. Well, from early April 2025, the tariffs have been in effect. And now we can clearly see the impact of this important economic news on the economy and the forex market by extension.
When the US tariffs were put in place, it meant that it would initially hinder other countries of the world to be able export to the US as freely as they were doing prior to tariffs.
What does it mean?
- It means there is going to be a decrease in exports to the US from most countries.
- This means a global disruption of export and import involving the US.
- It means there is uncertainty about the future of trade with the most powerful economy in the world.
Result: the US stock market has lost billions and billions of dollars in its evaluation. Companies and shareholders have lost money. And this means the value of the dollar has gone down against other currencies, such as the pair EUR/USD in the past 5 days.
The purpose of this article is not to talk about tariffs. We just wanted to show you how important economic news can impact the economy. This is just one factor that impacts the economy. There are many other key economic news events that can impact the forex market. We are going to talk about it in the next section.
Let’s wrap this section up:
- Economic news that strengthen the economy can drive up the value of a currency
- Economic news that weaken the economy can drive down the value of a currency
And this is exactly how economic news can directly impact the forex market.
Key Economic News Events and Their Impact on Forex Markets
Now, the important thing to know are the key economic news events. You need to familiarize yourself with them and be able to recognize them. So here are the most important news events for the forex market:
- Interest Rate Decisions
One of the most important news events for all currencies is the interest rate. This rate is set by the central bank of each country. The simple rule is this: when interest rates rise, investors flock to the currency and its will drive the value UP. On the other hand, it can be said that when interest rates are lowered it would make the currency less attractive for investors which would drive the value DOWN. So watch out for news events related to interest rates. This is especially the case for the interest rates announced by the US central bank known as the Federal Reserve.
- Employment Reports
A factor that could really indicate the strength and well-being of an economy are employment rates. When these rates are announced, you can find out easily whether the economy is doing good or whether it is doing bad. If the employment rates are good, the economy is good, the value of currency goes UP. If the employment rates are bad, the economy is bad, the value of currency goes DOWN.
- Gross Domestic Product (GDP)
The most important factor for the strength of any economy is the growth of domestic product or GDP. This figure shows the total economy out of an economy. So, basically the performance of the economy. Similarly, when GDP is high, the economy is doing good, the value of currency goes UP. Contrary, when the GDP is low, the economy is doing badly, the value of currency goes DOWN.
- Inflation
Another extremely important factor is of course inflation. This is pretty easy to explain as you have no doubt encountered it in your own personal life.
Inflation refers to the rate at which the price for goods and services increases in a fiscal year or fiscal period such as seasonal or even monthly.
Inflation has an opposite relationship with currency value. Simply put, lower inflation means more value for currency, and vice versa.
- Retail Sales
Yet another figure that shows the performance of an economy are its retail sales. What do retail sales have to do with the economy?
Well, think about it like this: when retail sales are high it means market participants or the people have enough liquidity to spend, this capital boosts small businesses, such businesses take out big loans from the banks, they hire more and more people, all due to the fact that people have liquidity to spend.
How to Trade the News in Forex?
Now that you know the concept of economic news, their impact on the forex market, and also the most important news events, it is time to see how to trade during such times. The easiest answer is to just go without an expert advisor!
And you better believe there is no better option out there. We offer forex traders an excellent AI-based fundamental analysis tool that is able to explore market data from Investing and Forex Factory, analyze historical market data using machine learning algorithms, select your desired currency and let the bot analyze effective news for trading, and also anticipate trends based on historical data and upcoming news.
- Prepare for Scheduled News Events
There are certain economic news events that are published regularly. These include economic reports such as inflation, GDP, employment rates, trade reports, etc.
These important economic news events offer you the advantage that they can be expected and scheduled. You will not be taken by surprise. You can expect them. Therefore, you can prepare for them.
Here, the concept of an Economic Calendar becomes really important. You can put these news events on a calendar and prepare for them accordingly.
- Understand the Market’s Reaction
A great strategy that you can use in order to trade the news in the forex market is by understanding the reaction of the market. If you understand how the market reacts, you can use that valuable information to your advantage. There is an amazing saying that goes Buy the Rumor, Sell the Fact. This means when there is news coming, the market will move in the direction of the rumors and then when the news settles and facts are out, there might be a reversal. So for instance, if the rumor indicates lowering prices, you can buy. And then after the reality reverses the price you can sell for higher.
This is just a general strategy. It emphasizes on the fact that there are two phases of news events in forex. One that comes before the news and one that comes after it.
- Use Volatility to Your Advantage
News events are bound to cause volatility in the market. Especially right before and immediately after they are released. Therefore, a great strategy is to opt for trading techniques that are suitable for volatility. These include trading methods that are short term such as scalping and are able to take advantage of small time frames such as 1-M or 5-M.
- Risk Management is Key
As we just said, important economic news events bring volatility, uncertainty, and risk to the forex market. So this increased risk needs to be dealt with in the right way. Here are some methods that can help you with that:
- Tighten Stop-Loss Orders
A great measure of risk management is to tighten your stop loss orders. This means your stop loss triggers become more sensitive to risk and loss.
- Use Smaller Position Sizes
Because such times are uncertain and risky in the forex market, there is no reason that you should risk your assets. During these times, you can use smaller position sizes so that you risk less of your assets.
Conclusion
There are many factors that impact the forex market. This is exactly why it is not easy to analyze and predict market movements with high precision. But if you are familiar with these factors and understand them, you can increase your chances of accuracy and higher profits.
Among these factors, economic news has a serious and huge impact on forex markets. In this article we discussed the concept of economic news, its impacts on the forex market, key economic news to watch out for, and also hot to trade news.