Guide to Currency Trading: Developed Countries: United States

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Economic Indicators for the United States

Economic Overview

The U.S. economy is the largest in the world, with a GDP of US$12.37trl, which accounts for almost 21 percent of the world's total gross product. With a 3.5 percent growth rate from 2004 to 2005, the U.S. posted strong growth results compared to other major industrial countries, due in large part to substantial gains in labor productivity. The U.S. has the fourth largest labor force in the world. The estimated per capita GDP is $41,800, which is the second highest in the world.

The U.S. is a leading world industrial power, and is also highly diversified and technologically advanced. The market-based economy is largely service-oriented, with approximately 79 percent of firms in the service sector, 20 percent in industry, and 1 percent in agriculture.

The U.S. imports significantly more than any other country in the world, and is the third largest exporter of goods. The country's most important trade partner is Canada, largely due to the proximity of the two countries. The U.S. has a very large net trade deficit of $799.5bln, which can be attributed to the fact that the U.S. is the largest trading partner for many countries. The U.S.'s external debt exceeded $8.84trl in 2005, the highest of any country.

The response to the terrorist attacks on September 11, 2001, highlighted the strength and resilience of the U.S. economy. The war and the U.S. occupation of Iraq led to considerable shifts of national resources to military funding. Long-term issues for the U.S. include insufficient investment in the country's economic infrastructure, rapidly rising medical and pension costs for the aging population, skyrocketing energy costs, the large trade and budget deficits, and widening family income gap between the lower and upper economic classes.

Economic Policy Makers and Tools

The Federal Reserve was founded in 1913 as the central bank of the U.S. The Federal Reserve is described as "independent within the government," because its decisions do not have to be ratified by the President or any other member of the executive branch of the government. However, it is subject to regulatory supervision by Congress. The Federal Reserve sets national monetary policy to promote the objectives of maximum employment, stability in the purchase power of the dollar, and moderate long-term interest rates.

The Federal Open Market Committee (FOMC) oversees market operations. The FOMC holds eight annual meetings, in which interest rate changes and economic expectations are announced. The FOMC also forecasts GDP growth, inflation and unemployment rates, which are released by the Federal Reserve in the biannual Monetary Policy Report in February and July. The Monetary Policy Report is followed by the Humphrey-Hawkins testimony, in which the Federal Reserve Chairman responds to questions from members of Congress and the banking committees regarding the contents of the report.

One way that the Federal Reserve manages monetary policy is through the use of open market operations, which are conducted by the Open Market Trading Desk. The Desk purchases and sells government securities based on projections for the supply and demand of Federal Reserve balances. These can be long-term operations, to balance a deficiency or surplus for weeks or months, or short-term operations, to adjust the federal funds rate so that it is near the target rate set by the FOMC. When the Fed purchases securities, interest rates decrease, and when they sell securities, interest rates increase.

The Federal Reserve sets the federal funds rate as a key policy target. This is the interest rate that the Fed charges on overnight loans between banks. The rate is set to maintain price stability and limit inflation. This rate influences other interest rates throughout the U.S. economy, and can vary daily. In order to stay near this rate, the Fed can conduct short-term open market operations.

The U.S. Department of the Treasury also influences economic policy. It is responsible for issuing government debt and for making fiscal policy decisions, including tax levels and government spending. The U.S. Treasury gives instructions to intervene in the foreign exchange market by selling or buying the USD if they feel that the exchange rate of the USD is over or undervalued.

Characteristics and Trends

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* The "Average Bid/Offer" listings above are illustrations of how the average prices or spreads of a listed currency pair may appear. They do not, however, reflect the spreads or bid/offer prices available to forex traders through Global Forex Trading, Division of Global Futures and Forex, Ltd.

NOTE: The information in this publication is taken from publicly available sources and is subject to change without notice. The publisher assumes no responsibility for inaccuracies or changes in the data. The information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this guide for your general information. Global Forex Trading will not be responsible for any losses incurred on investments made by readers and customers as a result of any information contained in this guide. Global Forex Trading does not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.