Inflation Becoming Irrelevant in Forex

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Inflation data, that is published all the time is becoming less and less important in these days of a global economic crisis. It doesn’t ignite price action as it used to up to the last summer.

Up to the summer of 2008, Consumer Price Index (CPI) and Producer Price Index (PPI), played a big role among economic indicators. Both figures were closely watched by traders. An unexpected rise in CPI would cause the relevant currency to strengthen, since a rise in prices usually causes the central banks to raise interest rates.

But since the global crisis broke out, fears of inflation are gone. Also hyperinflation seems to belong to the distant past. Well, except Zimbabwe…

Now the central banks are focusing solely on reviving the economies and saving the financial banking system. All the efforts are going into spilling more money into the markets, rather than holding it.

It seems as if there’s a race to the round zero interest rate. Some countries are already there. The rest will follow. And when the central banks decide about rates, CPI and PPI aren’t mentioned anymore. Only growth and stimulation matter.

Ignoring CPI and PPI is already seen in the forex market: there’s no significant price action after such releases. Once they were major, since they had a direct link to interest rates. But now, yields are nearing zero, and the race isn’t determined by prices, but rather by collapses of banks, terrible GDP releases, house sales, etc.

If these policies continue, the trend will naturally reverse one day, since there will be too much money in people’s hands. This will come hand in hand with the end of the current collosal crisis.

So, Inflation is currently quite an irrelevant factor in the forex market.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.