How Global Political Events Impact Currency Trading Strategies

Global political events can also affect significantly the currency markets since exchange rates can change their course at any one time. Such change processes should therefore be closely monitored by Forex traders, since they bring about chance factors in the foreign exchange market. Short-term politico-factors such as decision-making or crisis on the national or international level, may shifts investors’ feelings, alter trade relations, and, encourage or depreciate currencies.

After a big event like an election, political conflict or a change in policies, the markets respond. These indices of economic performance are used constantly by investors as they try to evaluate the consequences of these events for economic stability and the future of global buying and selling. For instance, when political incumbents change or new trade laws are enacted then one country’s economic expectations are likely to change. It may also cause fluctuation effects on currencies to rise at once and reduce at once as well. There is usually an echoed response from traders who shift their trade activities based on how these events are likely to happen.

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Think about the effect of Brexit on the British pound. Volatilities in the Forex market were attributed to Brexit whereby the United Kingdom’s exit from the European Union resulted in massive swing in GBP/USD. Speculative strategies decision in forex trading were actually mainly determined by political bargaining, legal hearings, and social opinions. The pound tumbled down as there were still questions on how the United Kingdom would relate with the European Union. The trading situation was dynamic and traders were always shifting their alignment with the progression of the stories, which in essence underlined the flexibility necessary in view of political processes.

Also, in the country with high political risks, such as the new economies the value of currency can be highly unpredictable. When there is civil instability, war or mayhem, people will hesitate to invest hence emergence of calls for economic sanctions. In such cases, there is trend in shifting of local assets into safer liquid foreign currencies through equities, gold and other non-risky currencies across more secure economies. This conduct results in massive global selling in currencies from politically instable nations which normally triggers such currencies’ deterioration.

This means that trading strategies for Forex must also take into account other political events on the international level. Trade wars, tariffs and sanctions have a very serious effect on economic growth within and across countries. For instance, the conflict of interest, in the trade war between the United States and China affects both currencies used in the trading partners as well as other currencies affiliated to the global networks of supply and demand chain. Such developments remain essential for the forex traders to understand with a view of making necessary changes that would help them avoid disasters or enhance on possible gains.

The merchandize of politically directed central bank policies is also another consideration. The fiscal policies including interest rate changes decided by a country’s central bank such as quantitative easing or quantitative tightening policies are always political decisions. Sometimes the politics of a country can change from one leaning toward the left to one leaning toward the right or vice versa to change the leadership of them minting currency based on new policies.

The political events are therefore guideposts on the highly dynamic world of Forex trading business. Thus, knowing how these events affect economy enables traders to predict related reactions on the markets and modify their actions consequentially. To an inexperienced trader, politics may appear unrelated to foreign exchange markets, especially, currency markets when in fact, they share a very close connection and political events of the world can greatly influence the operation of the currency markets.

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Marie

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Marie is Tech blogger. She contributes to the Blogging, Gadgets, Social Media and Tech News section on TechPopular.

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