Key fundamentals
- Central bank policy and interest-rate expectations
- Inflation
- Growth and employment
- Trade and capital flows
- Risk sentiment
1. Central banks and interest rates
Currencies are strongly influenced by the expected path of interest rates. When markets expect one central bank to raise rates faster than another, the first currency often strengthens. Watch the Bank of England, Federal Reserve, ECB and Bank of Japan.
2. Inflation
Inflation above target pressures central banks to keep rates higher, which can support a currency. Surprises in CPI releases often move markets the most.
3. Growth and employment
GDP, PMIs and jobs data shape the outlook for rates. Strong data supports the currency; weak data can undermine it.
4. Trade and capital flows
Countries with large current-account deficits rely on foreign capital, which can make their currencies sensitive to changes in investor confidence.
5. Risk sentiment
| Mood | Currencies that often gain | Currencies that often weaken |
|---|---|---|
| Risk-on | AUD, NZD, and often GBP | JPY, CHF |
| Risk-off | USD, JPY, CHF | AUD, NZD |
A simple weekly routine
- Note the week's major releases and central bank events.
- Ask which central banks are likely to be more hawkish or dovish.
- Favour trades where your technical setup agrees with the fundamental bias.
- Reduce exposure ahead of high-impact events.
Frequently asked questions
Is fundamental analysis useful for short-term trading?
It mainly sets the context and direction. Short-term traders use it to know when major events are due and which way the bigger picture leans.
What is an interest-rate differential?
The difference between two countries' interest rates. Currencies with rising relative rates often attract capital.
CFDs and spread bets are complex instruments and come with a high risk of losing money rapidly due to leverage. Most retail investor accounts lose money when trading these products. You should consider whether you understand how they work and whether you can afford to take the high risk of losing your money. Content is general information, not financial or tax advice.