Fundamental analysis in forex involves evaluating economic, political, and social factors to forecast currency price movements. Traders analyze macroeconomic indicators, government policies, and geopolitical events to understand a currency’s intrinsic value and predict future exchange rates. Key indicators include interest rates, inflation, GDP growth, employment figures, and trade balances.

Central banks play a crucial role, as their decisions on interest rates and monetary policy significantly impact currency values. Political stability, economic policies, and global events also influence forex markets. Traders using fundamental analysis seek to identify trends and make informed predictions about a currency’s strength or weakness.

For example, if a country’s economic data suggests robust growth and stable political conditions, its currency may strengthen. Conversely, negative indicators can lead to currency depreciation. Traders then make buy or sell decisions based on these assessments.

Fundamental analysis complements technical analysis, which focuses on historical price data and chart patterns. By understanding the underlying factors driving currency movements, traders aim to make more informed and strategic decisions in the dynamic forex market.