Academic journal article Advances in Management

Impact of Macroeconomic Indicators on Euro Currency

Academic journal article Advances in Management

Impact of Macroeconomic Indicators on Euro Currency

Article excerpt

Abstract

This study presents a broad understanding of the Forex market, its participants and the methods used for analysis of the Forex markets. This research focuses on the currency Euro and the major economic indicators of the Euro zone. This research aids in understanding the movement of the Euro to the timely releases of Euro-zone economic indicators. Further this study also helps in determining the movement of the euro in a particular direction in the short term. Data was analysed using inferential statistics.

Thus findings of this study revealed that the Flash GDP is at the top spot as the most important economic indicator in business survey as it contributes 5.3 percent of changes in EUR/USD. German Prelim GDP is second most important economic indicator in business survey as it contributes 3.5 percent of changes in EUR/USD. German ZEW Economic Sentiments contributes 2.7 percent of changes in EUR/USD.

Keywords: Forex, Euro Currency, Economic Indicators, Domestic Interest Rates, Inflation Rate, German ZEW Economic Sentiments, Flash GDP, German Prelim GDP.

Introduction

The Foreign Exchange (Forex, FX) Market is by far the largest financial market and it operates in every comer of the world in every single currency. The presence of the Euro currency in the global economy becomes stronger due to integrated financial markets. Foreign Exchange Market directly influences each country's foreign-trade patterns, determines the flow of international investment and affects domestic interest and inflation rates. The Foreign Exchange market strengthens all other financial markets. Foreign Exchange Market is analysed with the help of various economic indicators such as Trade Deficit, Gross National Product, Industrial Production, Unemployment Rate, Inflation Rate, Factory Utilization Rate, Balance of Trade, Business inventories etc. Economic indicators are playing vital role while determining the degree of volatility of financial markets.

Review of Literature

The impact of macroeconomic indicators on currency has been widely studied, analysed and documented in the finance literature. These investigations have covered macroeconomic indicators such as Inflation with respect to consumer price index and wholesale price index, Minimum Bid Rate, Growth in terms of German GDP and Flash GDP, German ZEW economic sentiment, German Flash PMI, French Flash Manufacturing PMI, German IFO business climate, Spanish Unemployment etc.

Lovell et al1 examined the macroeconomic performance of 19 OECD countries over the period 1970-1990. According to them, performance is in terms of the ability of a country's macroeconomic managers to provide four services to their citizens: a high level of real GDP per capita, a low rate of inflation, a low rate of unemployment and a favourable trade balance. The findings of the research suggested that the performance rankings do change and that the relative performance of the European countries declines when the environmental disseminates are added to the service list.

Hall et al5 used a newly available dataset on the R&D investment of individual French manufacturing firms in the 1980s, research replicate and update a series of studies on French R and D and productivity at the firm level from the 1970s and evaluate the robustness of the methods currently used to measure the private returns to R and D. Having a longer history of R and D expenditures helps improve the quality of the R and D elasticity estimates, but the choice of depreciation rate for R and D capital makes little difference. Beisea et al6 dealt with the effects of publicly funded research at universities, polytechnics and federal research laboratories on industrial innovations in Germany. This research paper discussed the characteristics of companies that benefit from the findings of public research institutions.

Combes6 tested how the local economic structure (local sectoral specialization and diversity, competition, average size of plants and total employment density) affects the 1984-1993 employment growth of 341 local areas. …

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