The Beige Book

Most currency exchange traders make use of the economic calendar to predict market moves. Included in this calendar of events is the reading of the beige book.

The beige book gives a summary of the economic situation in the United States; it’s put together by the board of the U.S. Federal Reserve. The way the data is compiled is quite interesting. Each bank gathers information from its district and conducts interviews with experts and business people. This book makes outsiders aware of what the governors are reviewing in preparation for their FOMC meetings.

The importance of the beige book lies in the fact that the Federal Reserve takes these reports and analyzes them in order to make interest rate decisions. It’s basically a tool that measures the health of the economy. It’s been said that the beige book has the power of shifting investor sentiment in the Forex markets, deviating their behavior from what analysts predict.

So if the book reflects a high level of inflation, the Fed may act upon this and raise interest rates. If the reports show a deflationary tendency in the economy, the Fed will likely lower interest rates. These are issues that influence the U.S. Dollar.

As a trader, you should be aware of how the FOMC affects currencies and of the fact that the Beige reports are released two weeks prior to the FOMC meetings. Its accurate name is “summary of commentary on current economic conditions by Federal Reserve district.”