As is usual on the first Friday of
every month, last Friday saw the release of the US Non-Farm Payrolls report.
This is always eagerly awaited by Forex market participants, and others, as the
employment statistics are believed to be one of the most important factors
taken into account by the Federal Reserve in its deliberations on monetary
policy. As such, it is regarded as a leading indicator of how the US currency,
in particular, will behave. The short-term volatility on its release is regarded
by most as a good reason to stay out of the market in the period just prior to
and after the announcement.
But there are other economic
indicators that can move the market. Some are more important than others. Gross
Domestic Product (GDP), for example, is important, for reasons that should be
obvious, as are Consumer Price Inflation (CPI) figures.
While NFPs and GDP figures are
produced by government agencies for the most part, there are a number of
important indicators that are released by private bodies. Foremost amongst
these are the various Purchasing Managers’ Indexes. These are arrived at by the
Institute for Supply Management (ISM), in the USA, and the Markit organisation,
in other countries, polling a selection of managers in the private sector who
have responsibility for procurement within their companies. They ask them a
standard set of questions that are designed to determine the trend in the
purchasing spend for the economy concerned.
Some
PMIs are more watched than others.
Whoever is doing the polling, there
are typically three different categories of PMI: manufacturing, services and
construction. Depending on the economy they refer to, some of them will be
given more weight by market participants than others. For example, the chart at
the top shows the reaction of Cable, or the GDPUSD currency pair, to the
release of the construction PMI for the UK last week (Feb 3rd),
which was regarded as positive for the Pound Sterling. The services PMI outcome
would also be seen as important but, from the reaction of the market, it would
seem that Britain is fast becoming a post-manufacturing economy.
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