It all routes through interest rates
Currencies follow expected interest rates. A currency whose central bank is expected to raise rates attracts capital and strengthens; one whose bank is expected to cut weakens. Every other indicator matters because of what it says about the next rate decision.
Inflation
Central banks target inflation, usually around 2%. CPI (consumer prices) above target raises the odds of a hike; below target, of a cut. Core CPI — excluding food and energy — is what the banks actually watch, because it is less noisy.
Employment
Strong hiring and rising wages feed inflation, so they push toward higher rates. In the US, non-farm payrolls on the first Friday of the month is the single most-watched release in forex; unemployment rate and average hourly earnings arrive with it.
Growth
GDP measures total output. It is backward-looking and heavily revised, so it moves markets less than inflation or jobs — except when it surprises hard. PMIs (purchasing managers' surveys) are the forward-looking version and often move price more.
Central bank meetings
The decision itself is usually priced in. The statement, the vote split, the projections and the press conference are where the surprise lives. "Hawkish" means leaning toward higher rates; "dovish" means toward lower.
Summary
Inflation, jobs and growth matter because they change rate expectations, and rate expectations move currencies. Read every release as a vote on the next central bank decision.
