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Forex Tutorial: Currency Profiles

Profile of Currency: US dollar (USD, usd)

Economic Overview

With a GDP of US$13.84 trillion (2007 est.*) - about one fifth of the world's total, the United States has the largest economy in the world. The US economy is largely services-oriented, with services accounting for about 79% of the US total GDP, while industry and agriculture produce about 19.8% and 1.2% of the US GDP respectively (2007 est.).

The US economy enjoys technological advantage over its competitors, though this advantage has eroded due to technological achievements in countries such as Japan and Germany in recent years. Nevertheless, the technological superiority of the United States is still evident in computers and in medical, aerospace, and military equipment.

The United States also has the largest volume of foreign trade in the world and accounts for approximately one fifth of the world trade. Its exports total about US$1.148 trillion, and imports total US$1.968 trillion (2007 est.). The US is a major exporter of transistors, aircraft, motor vehicle parts, computers, telecommunications equipment, organic chemicals, automobiles, medicines, soybeans, fruit, and corn. Its main imports include crude oil, computers, telecommunications equipment, motor vehicle parts, office machines, electric power machinery, automobiles, clothing, medicines, furniture and toys. Canada, Mexico, China, Japan and Germany are the largest trading partners of the United States.

Another advantage the US economy enjoys is its stock and fixed income markets, which are the most liquid in the world. The US stock and bonds markets have attracted a large percentage of the world's foreign savings. These capital inflows have a direct influence on the value of the US currency.

With a per capita GDP of $46,000, the purchasing power of the US residents is among the highest in the world. However, there is stagnation of income for the lower economic groups.

Federal Reserve ( Fed ): the US monetary policy-making

Federal Reserve is the Central Bank of the United States of America, which is responsible for US monetary policy. Its mandate is the long-term price stability and sustainable growth of the United States. A key tool for the Federal Reserve to regulate money supply is the Federal Funds Rate - the interest rate charged between depository institutions (mostly banks) for short-term loans to meet their reserve requirements. Federal Open Market Committee ( FOMC ) is the component within the Federal Reserve responsible for US monetary policy through setting the target level for the Federal Funds Rate. Since 1981, the committee holds 8 regular meetings each year, and the minutes of these meetings are closely watched by forex traders.

USA key economic indicators:

Consumer Confidence
Consumer Price Index ( CPI )
Employment / NFP
Employment Cost Index (ECI)
Gross Domestic Product (GDP)
Industrial Production
Institute of Supply Managers / Chicago PMI
International Trade
Producers Price Index (PPI)
Retail Sales

Profile of Currency: EURO (EUR, eur)

Economic Overview

Euro is the common currency for European Economic and Monetary Union (EMU), which is an international organization of 16 European countries with the goal to share a common currency. It started in 1990 and culminated with the adoption of the euro as a single currency on January 1, 1999. Its initial member nations include Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal. Between 2001 and 2009, Greece, Slovenia, Cyprus, Malta and Slovakia joined. EMU is also referred to as the European Monetary Union.

With a GDP of over US$6 trillion, the EMU as a whole is the world's second largest economic power. Services account for approximately 70% of the EMU GDP, making the economy largely service-oriented.

The EMU block is also a major power in international trade. Its exports and imports comprise approximately 19% and 17% of the world total respectively. Its imports and exports are largely balanced.

The introduction of euro has provided an alternative reserve currency to the US dollar in the world. The proportion of the euro used as a reserve currency has significant implications for the forex market.

Within the the European Monetary Union, German, France and Italy have the largest economies. The economic conditions of these three countries have more influence on the value of Euro than other countries within the block.

ECB: the Central Bank for Euro

The European Central Bank (ECB) is the central bank for EMU's single currency, the euro. The Eurosystem comprises the ECB and the NCBs (national central banks) of those countries that have adopted the euro. The ECB’s main goal is to maintain the euro's purchasing power and the price stability in the euro area. In general, the ECB strives to keep the annual growth in consumer prices beyond 2%. The ECB may also try to guard against excess strength in the euro, since this could present a risk to its export, which is very important to its economy.

The Governing Council of ECB is the body responsible for monetary policy decisions for EMU. The council consists of the six members of the executive board of the ECB, and the governors of all NCBs of EMU member countries.

The ECB Governing Council meets twice every monthly (Calendar). Decisions on the key interest rates for the EMU are normally taken during this meeting.

Shortly after the first meeting of the ECB Governing Council each month, a press release announcing the decision on the key ECB interest rates is issued at 1.45 p.m. C.E.T. At around 2.30 p.m. C.E.T. , the ECB President and the Vice-President hold a press conference. A transcript of the questions and answers from the ECB press conference is available on this website a few hours later.

In general, when the ECB plans on changing interest rates, it will let the market know beforehand by warning of such impending move through comments to the press. Therefore, the ECB press release and press conference are closely watched by forex traders.

Key Economic Indicators for the Euro

Gross Domestic Product (GDP)
EMU Member Countries' Budget Deficits
German IFO Business Climate Survey
Harmonized Index of Consumer Prices (HCIP)
German Industrial Production
Inflation and unemployment rates of member countries, especially for Germany, France and Italy

Profile of Currency: British Pound (GBP, gbp)

Economic Overview

The United Kingdom's GDP is valued over USD$2.7 trillion (2007 est.). Like most industrialized countries, the UK economy is largely services-oriented. Services account for approximately 75.7% of the UK total GDP, while industry and agriculture only produce about 23.4% and 0.9% of the UK GDP respectively. Finance and banking sectors are the largest contributors to the British GDP.

UK's exports total about US$442.2 billion, with US, Germany, France, Ireland and Netherlands as its major export markets. The main products UK exports are manufactured goods, fuels, chemicals, food, beverages, and tobacco. It is important to note that UK is one of the largest producers and exporters of natural gas in the European Union as well as a net oil exporter, and the energy production industry accounts for 10% of GDP, which is unique among the Western industrialized nations. Thus the global energy prices exert significant influence on UK's economy.

In 2007, UK imported goods of about US$621.4 billion, running a trade deficit of around US$180 billion. Its main imports include manufactured goods, machinery, fuels and foodstuffs. Germany, US, China, Netherlands and France are the five largest importing sources of the United Kingdom.

Central Bank: Bank of England (BoE)

The BoE's goal is to maintain monetary and financial stability. In recent years, the central bank set the inflation target at 2%, in order to keep prices stable and to maintain confidence in its currency. BoE adjusted its monetary policies largely on the basis of the inflation level.

Within the Bank of England, the key policy-making body is the nine-member monetary policy committee, which consists of a governor, two deputy governors, two executive directors and four outside experts. The committee holds meeting monthly. The minutes and voting results of these meetings are closely watched by forex traders.

United Kingdom's (UK, Britain, England) key economic indicators

Gross Domestic Product (GDP)
Industrial Production
Purchasing Managers' Index (PMI)
Retail Price Index (RPI)
U.K. Housing Starts

Profile of Currency: Japanese Yen (JPY, jpy)

Economic Overview

Japan is the second most technologically powerful economy in the world. Its GDP is valued over USD$4.384 trillion (2007 est.). Services account for approximately 72% of the Japanese total GDP, while industry and agriculture produce about 26.5% and 1.4% of Japan's GDP respectively (2007 est.).

Japan's exports total about US$678.1 billion, with US, China, South Korea, Taiwan, Hong Kong as its largest export markets. The main products Japan exports are transport equipment, motor vehicles, semiconductors, electrical machinery, and chemicals.

In 2007, Japan imported goods of about US$573.3 billion. Its main imports include machinery and equipment, fuels, foodstuffs, chemicals, textiles, and raw materials. China, US, Saudi Arabia, UAE and Australia are the five largest importing sources of Japan.

One notable characteristics of the Japanese economy is its reliance on foreign trade. Japan imports a preponderant portion of raw materials and fuels while exporting manufactured products. Nevertheless, Japan has been been able to maintain a substantial trade surplus for decades. Moreover, Japan has been a major provider of capital in the world. For years, Japanese yen has been a funding source for carry trade in forex trading.

Central Bank: Bank of Japan (BoJ)

The BoJ's goal is to ensure price stability and the stability of Japan's financial system. In recent years, it has set inflation as one of its top priorities.

Within the Bank of Japan, the key policy-making body is the nine-member monetary policy committee, which consists of a governor, two deputy governors and six other members. The committee holds meeting once or twice every month.

It is known that the Japanese central bank has been very proactive in preventing an excessively strong yen, since exports are crucial to Japan's economy. Bank of Japan reportedly sells Japanese yen frequently against U.S. dollar and euro in the open market so as to weaken its currency.

Japan's Important Economic Indicators

Balance of Payments
Gross Domestic Product
Industrial Production
Tankan Report

Profile of Currency: New Zealand Dollar (NZD, nzd)

Economic Overview

Because of its small size, New Zealand has a much smaller economy compared with other developed countries. Its GDP is valued over USD$128.1 billion (2007 est.). Services account for approximately 69.3% of New Zealand's total GDP, while industry and agriculture produce about 26.2% and 4.5% of its GDP respectively.

It is noteworthy that agriculture accounts for a larger share of GDP in New Zealand than in most other developed countries. The agricultural sector also generates the bulk of New Zealand's exports, which total about US$27.35 billion in 2007. The main products New Zealand exports are dairy products, meat, wood and wood products, fish, and machinery. Among its largest export markets are Australia, US, Japan, China and UK.

In 2007, New Zealand imported goods of about US$29.06 billion. Its main imports include machinery and equipment, vehicles and aircraft, petroleum, electronics, textiles, and plastics. Australia, China, US, Japan, Singapore, and Germany are the six largest importing sources of New Zealand.

New Zealand's economy is still export-oriented, although exports' share of GDP has dropped to about 22% of GDP in 2007 from from 33% in 2001. Therefore, the prices of its products in the international market have strong impact on its economy and consequently, the value of its currency. The New Zealand dollar is known as one of the commodity currencies.

Central Bank: Reserve Bank of New Zealand (RBNZ)

The goal of RBNZ is to maintain price stability and to avoid instability in output, interest rates and exchange rates. In recent years, the RBNZ has set its inflation target at 1.5%. The central bank has made it a top priority to meet this target.

One feature that distinguishes RBNZ from most other central banks is the dominating power of the central bank's governor, who enjoys the ultimate say in the decision-making of New Zealand's monetary policies.

New Zealand's Important Economic Indicators

Gross Domestic Product (GDP)
Consumer Price Index (CPI)
Producer Price Index (PPI)
Balance of Goods and Services
Private Consumption

Profile of Currency: Swiss Franc (CHF, chf)

Economic Overview

Switzerland enjoys one of the highest per capita GDP in the world. Its total GDP is valued over USD$908.8 billion (2007 est.). Services account for approximately 64.5% of Switzerland's total GDP, while industry and agriculture produce about 34% and 1.5% of the Swiss GDP respectively (2007 est.).

The Swiss economy is strongly export-oriented, with exports totaling about US$200.1 billion in 2007. The main products Switzerland exports are machinery, chemicals, metals, watches, and agricultural products. Among its largest export markets are Germany, US, Italy, France and UK.

In 2007, Switzerland imported goods of about US$187.1 billion. Its main imports include machinery, chemicals, vehicles, metals; agricultural products, and textiles. Germany, Italy, France, US, Netherlands, Austria and UK are the largest importing sources of Switzerland.

Switzerland has long been a safe-haven for international investors. It has a competitive banking services industry, and it has maintained the Swiss franc's long-term external value.

Central Bank: Swiss National Bank (SNB)

The goal of SNB is to secure price stability while taking proper account of the economic development. SNB defines price stability as a rise in the national consumer price index (CPI) of less than 2% per year. In recent years, SNB's monetary policy strategy is made up of a definition of price stability, a medium-term inflation forecast, and a target range for a reference interest rate, the three-month Libor for Swiss francs. As the Swiss economy is strongly export-oriented, the central bank has vested interest in preventing excess strength of its currency. Thus in general, SNB has kept interest rate comparatively low.

Within the Swiss central bank, there is a three-person committee that is primarily responsible for decision- making of monetary policies. SNB publishes its monetary policy assessments on a quarterly basis in March, June, September and December. And it holds a media conference in June and in December.

Switzerland's Important Economic Indicators

Consumer Price Index (CPI)
Gross Domestic Product (GDP)
Balance of Payments
Production Index (Industrial Production)

Profile of Currency: Australian Dollar (AUD, aud)

Economic Overview

Australia is a major exporter of raw materials and agricultural products in the world. As the currency often directly fluctuates with the prices of gold and other commodities, the Australian dollar is known as one of the commodity currencies.

Nevertheless, Australia owns a developed economy, with GDP valued over USD$423.9 billion (2007 est.). Services account for approximately 70.6% of the Australian total GDP, while industry and agriculture produce about 26.4% and 3% of its GDP respectively (2007 est.).

The Australian economy is export-oriented, with exports accounting for about one third of GDP in 2007. The main products Australia exports are coal, iron ore, gold, meat, wool, alumina, wheat, machinery and transport equipment. Among its largest export markets are Japan, China, South Korea, US and New Zealand.

In 2007, Australia imported goods of about US$160 billion. Its main imports include machinery and transport equipment, computers and office machines, telecommunication equipment and parts, crude oil and petroleum products. China, US, Japan, Singapore, Germany, UK, and Thailand are the largest importing sources of Australia.

Central Bank: Reserve Bank of Australia (RBA) The goal of RBA is to achieve low and stable inflation over the medium term, maintain financial system stability and promote the safety and efficiency of the payments system. Since 1993, the Bank has set a target for consumer price inflation of 2-3 per cent per year. The central bank actively participates in financial markets and manages Australia's foreign reserves.

With RBA, the the Reserve Bank Board is the body that has the primary responsibility of monetary policy decision. The Board meets eleven times each year, normally on the first Tuesday of the month except in January.

Australia's key economic indicators
Consumer Price Index
Gross Domestic Product (GDP)
Blance of Goods and Services
Producer Price Index (PPI)
Private Consumption

Profile of Currency: Canadian Dollar (CAD, cad)

Economic Overview

Canada's economy is closely interwoven with that of the US, which absorbs about 80% of Canada's exports. Canada is the US's largest external supplier of oil, gas, uranium, and electric power. Therefore, the Canadian economy and consequently the Canadian dollar is strongly influenced by the economic conditions in the United States.

The Canadian economy is export-oriented, with exports totaling $431.1 billion and accounting for about a third of the GDP (USD$1.432 trillion) in 2007. The main products Canada exports are motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment, chemicals, plastics, fertilizers, wood pulp, timber, crude petroleum, natural gas, electricity, and aluminum. Among its largest export markets are US, UK, and China.

In 2007, Canada imported goods of about US$386.4 billion. Its main imports include machinery and equipment, motor vehicles and parts, crude oil, chemicals, electricity, and durable consumer goods. US, China and Mexico are the largest importing sources of Canada.

Overall, Canada enjoys a substantial trade surplus, especially with USA. As Canada is a major exporter of raw materials in the world, the Canadian currency usually has a positive correlation with the prices of commodities such as gold and oil. Thus CAD is also known as one of the commodity currencies.

Central Bank: Bank of Canada (BoC)

Bank of Canada has a mandate to secure the integrity and value of the currency. The focus of the Bank's monetary policy is to keep inflation in the average price of goods and services near 2 per cent. BoC carries out its monetary policy mainly through influencing short-term interest rates.

Within the Bank of Canada, the body primarily responsible for Canada's monetary policy decision-making is the Governing Council, which consists of the Bank of Canada governor, the senior deputy governor and four deputy governors. Decisions are usually made through a consensus vote.

Canada's key economic indicators

Unemployment Rates
Consumer Price Index
Gross Domestic Product (GDP)
Blance of Trade
Producer Price Index (PPI)
Consumer Consumption

*Note: Some data used in this article are from the U.S. government sources.


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