WikiFX: How Does Consumer Confidence Index Affect Forex Market?

US Conference Board released the latest Consumer Confidence Index. The Index stands at 135.1, higher than the forecasted 129.5 but slightly lower than the previous 135.8.

The Consumer Confidence Index that reflects consumers confidence level in economic activity is a key indicator that plays a significant role in overall economy, as it can predict economic trend and consumer spending. A higher than expected reading suggests positive trend for the USD, while a lower than expected Index means the opposite.

Many factors contributed to the August Consumer Confidence Index which is higher than prediction but slightly down from the previous, and the Index provides key reference for predicting the economy. Economists from the Reuters forecasted the Index to be down at 129.5, but it turned out higher than the expectation, dropping only marginally.

The forecast had largely been based on Federal Reserves decision to cut interest rate by 0.25% due to trade tension and global economic slowdown. Though without receiving much positive response from the market, the move had given consumers clear signals. Chris Rupkey, Chief Economist of MUFG in New York observed: Despite the current trade war between China and the US, consumers remain optimistic, which indicates a positive economic outlook in the second half of 2019. The interest rate cut in July may even be viewed as a remedy to the economy, which encourages sustainable growth.

Survey of the US Conference Board showed that the Present Situation Index, which reflects consumer‘s attitude towards the current business situation and labor market, rose from 170.9 to 177.2, reaching its highest in 19 years. Meanwhile, the Expectations Index showing consumer’s short-term outlook for income, business, and labor market dropped from 112.4 to 107.0. The Conference Board warned that “consumers optimism in short-term economy may be dampened” if the trade conflict persists. On Monday, China and US both sought to ease the tension, as Beijing called for calm and US President Trump expected to reach an agreement. Alleviation of the trade tension helps to boost consumer confidence. The labor market saw a decline of unemployment rate in August, and consumers remained positive about the labor market.

The release of the Index saw marginal rise of gold price, while USD against a basket of currencies was scarcely affected. The US treasury bonds went up while Wall Street stock price went down. Canadian financial analyst Avery Shenfeld noted that domestic demand will offset some of the downdraft in trade for the US. The Index will limit the Federal Reserve for further easing, while showing little impact on the market for the moment.

As Lynn Franco, director of economic indicators and surveys of the Conference Board, said in a statement, “Though some sectors of the economy may be sluggish, consumers remain positive and are quite willing to spend their money.” Although domestic consumption will continue to be the main growth driver in economy, apprehension over financial market volatility and overall economy might undermine consumer confidence and cause instability of the forex market.

The economic statistics reveal much about the country‘s overall economy, which has a great impact on the forex market. US economic statistics usually draw the most attention of all. Considering the impact of such economic data on the forex market, WikiFX offers investors explanation and analysis of the major economic statistics before or after they’re released, in order to help investors make a better decision on the ever-changing forex market. Stay tuned as we present you more forex and financial updates.