Jack M_ Adams#91

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What is inflation and how does it impact forex trading?

Inflation reflects the rate at which prices rise in an economy. High inflation erodes purchasing power, forcing central banks to raise interest rates. Traders monitor inflation data like CPI and PPI because they signal future monetary policy. For instance, rising Eurozone inflation often pressures the ECB to tighten policy, strengthening EUR. Institutions hedge inflation risk through currencies with stronger monetary responses. Retail traders can use inflation trends as long-term directional guides. Benefits: early signals for interest rate changes. Risks: short-term forex moves may differ if inflation is already priced in. Inflation analysis highlights how forex trading requires understanding real-world economics—currencies are reflections of price stability and central bank credibility.