Fundamental analysis in the foreign exchange (forex) market involves evaluating the economic, political, and social factors that can impact the supply and demand of a currency. These factors can include interest rates, inflation, unemployment, and trade balances, among others.
To perform fundamental analysis in the forex market, analysts will typically start by examining a country’s economic indicators, such as gross domestic product (GDP), employment data, and inflation figures. They will also consider the country’s political stability and its trade relations with other countries.
One key factor that can impact the demand for a currency is the country’s interest rate. When a country raises its interest rate, it can make its currency more attractive to foreign investors, as they can earn a higher return on their investments. Conversely, if a country lowers its interest rate, it can make its currency less attractive, as the return on investment is lower.
Analysts will also consider the country’s trade balance, which is the difference between the value of its exports and imports. A country with a positive trade balance (more exports than imports) is generally seen as having a stronger currency, as it is in demand by other countries.
Overall, the goal of fundamental analysis in the forex market is to evaluate the economic and political factors that can impact the supply and demand of a currency, and use this information to make informed trading decisions.