National unemployment rate: a key weather vane in foreign exchange trading

We have previously discussed why the US economy is so important, and the unemployment rate mentioned is also a key data that affects foreign exchange trends. The unemployment rate not only reflects the employment status of a country’s working population in a specific period, but also reveals the dynamics of national economic development, which is an important indicator that traders need to pay special attention to.

Unemployment rate measures the proportion of a country’s workforce that is willing and actively seeking jobs. Countries calculate unemployment rates by counting the proportion of those willing and looking for jobs to the total workforce, but groups such as people with disabilities, retirees and students in school are not usually included in this statistics.

For traders, changes in unemployment rates can provide trading signals. It can be mainly divided into the following three situations for reference:

Lower than expected

When a country’s unemployment rate is lower than expected, it is characterized by an increase in workers creating income and consumption expenditure. Sometimes, this prosperity will encounter inflation, which in turn affects interest rates. A country’s decline in unemployment is a positive force, indicating that the country’s economy is strengthening, which creates a buying opportunity.

More than expected

When a country’s unemployment rate is higher than expected, consumption, income and economic activity will occur. Therefore, the government can implement fiscal policies and loseCreate demand in industry benefits and hire individuals for public works projects to stimulate the economy. When a country faces rising unemployment, forex traders often need to look for opportunities to sell.

lower than natural employment rate

The natural unemployment rate refers to the lowest level of unemployment that may exist when the economy grows stably. Below this level may trigger inflationary pressure. For example, if the U.S. unemployment rate drops below 5.5%, the Federal Reserve may take rate hikes to control the pace of economic growth and prevent overheating. Such policy changes have an important impact on the foreign exchange market.

When using the unemployment rate for foreign exchange trading, comparative analysis is recommended for year-on-year or longer periods, as short-term data fluctuations may not be sufficient to accurately reflect the unemployment trend. At the same time, traders should comprehensively use technical analysis and fundamental analysis, especially considering the complexity and changeability of the current international economic environment. Only by comprehensively considering various factors can we grasp trading opportunities more steadily and achieve profits.