Fundamental analysis: why currencies and gold move
Charts show what price is doing. Fundamentals explain why: interest rates, inflation, growth, risk sentiment and the flow of money between countries. You do not need to be an economist, but you do need to know which numbers move the market and when they are released.
1. The main drivers of currencies
- Interest rates and central banks
- The most important driver. Higher interest rates (or expectations of them) usually attract capital and strengthen a currency. Markets move on expectations: a rate hike that everyone expected can leave the currency unchanged, while a hint about the next meeting can move it sharply.
- Inflation
- Inflation above the central bank's target (usually 2%) raises the chance of higher rates, so hot inflation data often supports the currency in the short term.
- Growth and jobs
- Strong GDP, retail sales and employment data point to a healthy economy and possible higher rates; weak data does the opposite.
- Risk sentiment
- In calm markets money flows to higher-yielding currencies (for example AUD and NZD). In fear, it flows to safe havens such as the US dollar, the Japanese yen, the Swiss franc and gold.
- Trade and capital flows
- Countries that export more than they import, or attract investment, see steady demand for their currency over the long run.
2. What moves gold
Gold pays no interest and is priced in US dollars, so its main drivers are different from those of a currency:
| Driver | Usual effect on gold | Why |
|---|---|---|
| US dollar (DXY) rises | Negative | Gold becomes more expensive for buyers using other currencies. |
| Real yields rise | Negative | Holding gold means giving up a higher inflation-adjusted return elsewhere. |
| Rate-cut expectations grow | Positive | Lower expected yields and often a weaker dollar. |
| Fear, conflict, crisis | Positive | Safe-haven demand. |
| Central-bank buying | Positive (slowly) | Large, steady physical demand over months and years. |
These relationships are tendencies, not laws. In 2023–2024, for example, gold rose strongly even though real yields were high, helped by record central-bank purchases. Our gold analysis page measures whether each relationship is actually holding over the last 60 days.
3. The economic calendar
Scheduled releases cause most of the big intraday moves. The ones that matter most for USD pairs and gold:
- FOMC decision and press conference (US interest rates): eight times a year.
- CPI (consumer inflation): monthly, usually in the middle of the month.
- Non-farm payrolls (NFP) with the unemployment rate and wages: usually the first Friday of the month.
- PCE inflation, retail sales, GDP, ISM/PMI surveys and weekly jobless claims.
Each release has a forecast (the market's expectation) and an actual figure. The price reacts to the surprise, the difference between the two, and to revisions of earlier data. A "good" number that was fully expected often does nothing.
The gold news page lists this week's high-impact releases with the time in your time zone.
4. Trading around high-impact news
- Spreads widen and orders can fill far from the requested price (slippage). A stop can be filled well beyond its level.
- The first move is often reversed. Many experienced traders wait 15 to 30 minutes for the dust to settle.
- If you hold a position into a release, reduce the size so that a gap through the stop does not break your risk plan.
- Several releases at the same minute (for example retail sales and PPI) produce one combined reaction; you cannot know which number caused it.
5. Interest-rate differentials
A currency pair is a comparison of two economies. When one central bank is expected to raise rates while the other cuts, the gap between their rates (the differential) tends to pull the pair in favour of the higher-rate currency over weeks and months. Holding a position overnight also earns or pays the rate difference as swap; this is the basis of the carry trade, which works in calm markets and can unwind violently in panics.
6. Combining fundamentals with the chart
- Use fundamentals for the bias: which currency is strengthening, and what the market expects from the next central-bank meeting.
- Use the chart for the timing and risk: structure, levels and a clear stop (see price action and technical analysis).
- Check the calendar every day before trading, and know which releases fall inside your trade.
- When fundamentals and the chart disagree, the chart decides the entry and the stop; the fundamentals tell you to be more careful.
7. Common mistakes
- Trading the headline number without checking the forecast and the revisions.
- Assuming a relationship (dollar up, gold down) is fixed. It changes with the economic regime.
- Holding large positions into FOMC, CPI or NFP.
- Reading opinion articles as facts. Prefer the official releases and the price reaction itself.
Frequently asked questions
Is fundamental or technical analysis better?
They answer different questions. Fundamentals explain why a market may trend over weeks; technical analysis helps you choose an entry, a stop and a target. Most professional traders use both.
Why does gold fall when the US dollar rises?
Gold is priced in dollars, so a stronger dollar makes it more expensive for buyers using other currencies, which tends to reduce demand. It is a tendency, not a rule: both can rise together in times of fear.
What is the most important news for gold?
US inflation (CPI and PCE), the jobs report (NFP), Federal Reserve decisions and speeches, and anything that changes expectations for US interest rates or the dollar. Geopolitical shocks can matter as much in the short term.
Should I trade during news releases?
Beginners usually do better staying flat during high-impact releases. Spreads widen, slippage increases and the first move often reverses. If you hold a position, reduce the size.
What are real yields?
The interest rate on government bonds minus expected inflation. In the US, the 10-year TIPS yield is the common measure. Higher real yields make interest-free assets like gold less attractive.
Education only, not investment advice. Trading forex, gold and CFDs carries a high risk of losing money.