How the Consumer Price Index can indicate the forex market direction ?

CPI indicates various fluctuations in prices of services and goods. These fluctuations are calculated on the basis of average purchase of consumers. If the average consumption rate follows an increasing trend the CPI will also increase and if the average consumption rate follows a decreasing trend then CPI will be decreased. CPI not only indicates the fluctuations in price rate but also gives an idea of increasing or decreasing trends of consumption of food, health care, transportation, clothing, entertainment, education, energy usage housing and various other services and goods in use.

Generally talking, the rising trend of CPI shows an increase in the consumption and price rates of services and goods. This means that people have got more money and their spending power has increased. Such cases compel banking sectors to increase the interest rates. As we are familiar with the fact that interest rates directly affect the financial conditions of a person and people especially business persons are always seeking of the best interest rates given by a firm or a bank. Thus in such scenarios when an increasing trend in interest rates is found the business community is greatly attracted to deposit their assets in banks. Business persons take such steps only when they find that banks are offering them to earn more income compared to the profit they will earn from the business project they are going to start.
Greater the wealth better will be the economic conditions and higher will be the currency rates. Thus we can say that all these three things are directly related to each other. If we want to see the economic progress of a country we should increase the assets of that country.

It is not necessary that the increasing trend in CPI always means that the economic conditions of a country are getting better. Let’s take an example of economic crisis of United States of America. According to the survey it was found that one of the reasons for economic crash of United States seen in last few days was the unbalanced consumption of services and goods. The consumption rate was higher then the production rate. The United States Government failed in controlling the consumption rate because of which they faced a very serious economic clash. This economic clash also affected badly the U.S Dollar currency rates. A decreasing trend in the rate of U.S currency was found.