The Impact of Global Events on Forex Markets

Every day, traders from all over the world connected to the Forex market trade trillions of dollars’ worth of currency. It is extremely vulnerable to political events that have a direct influence on the values of currencies.

At times, political affairs and news, natural calamities, war, election results and a lot more can have an impact on the valuation of currency of that particular country which in turn will have an impact on forex markets. In this essay, we will look into some of the global events and how they influence the forex trading markets.

Trade wars

The forex markets are always affected with the events across the globe such as trade wars. In this article, I research the forex markets and try to find out how the events across the globe affect the movement of the forex markets.

Trade wars If tensions escalate, trade wars can potentially dramatically impact on currency values because alterations in how nations trade with one another would likely influence these figures dramatically. Harsher tariffs or other limitations imposed on imports from other countries could well cause reduced volumes of international capital flow.

Wars and trade wars likewise contribute to a nation’s economic unsoundness, mainly by damaging its infrastructure or limiting access to vital materials, reducing the productivity of resources and ultimately bringing down the value of a currency. Wars also bring about the imposition of trade sanctions and other economic restrictions, affecting both the economy and the value of currency.

Natural disasters

Surely, any event that negatively impacts the economy of one’s country can cause the currency to move: say, when catastrophe strikes a natural disaster it can lay waste to populations and cause economic losses that in turn can feed back into GDP and foreign exchange reserves.

As a fully global, interdependent market involving trillions of transactions per day, the movement of the Forex market can be influenced by events around the world all the time.

Nature disasters can have a multitude of indirect economic impacts, including property damage, supply-chain disruption, higher premiums for insurance, and diminished productivity and inflation rates. A natural disaster, in short, can create a domino effect of consequences for an entire country, especially if it hits in the context of conflict.

Pandemics

Even so, fx markets are as susceptible to global events as any other. The sensitivity of these markets could be an intimidating proposition to many, but for the traders it also brings opportunity as prices react to news or events that change the global economic trends.

Geopolitical risk, including political instability and terrorist activity, can cause dramatic declines in the value of a currency, discouraging traders from betting in those currencies.

Central banks such as the Federal Reserve in the US and European Central Bank in Europe move currencies at will by changing monetary policy, so traders have to know what the Federal Reserve or ECB says on an hourly basis.

Technological advancements

The forex market is the largest financial marketplace in the world and is undergoing constant change as global forces and technological innovations upend its structure and at times enable only the agile to survive.

Market forces, and economic factors, also have a large impact on markets, with central banks having significant impact due to their expansive monetary policies that can alter the value of a nation’s currency overnight. Other forces that move markets are inflation or unemployment reports; any figure that is above expectations will lead to changes in the calculation of interest rates and can move markets.

Such geopolitical events can also influence the direction of global finance, with reactions and volatility varying from market ‘shocks’ stemming from war and terrorism, through to natural disasters, and the deep-rooted effects of elections. During such times, safe-haven currencies such as the British pound, the Swiss franc, and the Japanese yen are particularly popular hedges.

Elections

A billion dollars in turnover a day, interest rates that can vary in response to changes in the global economy and geopolitics; all the more reason early on for the FX traders to stay informed of why short term market fluctuations are occurring.

Forex trading markets can be affected as much, if not more, by politics than by economic news, as can be seen by the big price swings that sometimes come when economic reports or data are released; those swings are even larger – far more dramatic – when the political developments have a geopolitical component.

Elections in the US and France are certain to generate foreign exchange volatility – with investors monitoring for hints that a future administration could reverse Trump’s America First policy and return to more globalised approaches to international relations.