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How Global Events affect the Forex Market
Written by: PaxForex analytics dept - Tuesday, 23 February 2016 0 comments
The currency markets of the world can be viewed as a wide ranging and constantly changing mix of current events. Due to the volatile nature of the world events and the constant shifting of supply and demand, the price of one currency in relation to another is always changing. No other market is affected so much by what is going on in the world as much as the forex market.
With the forex market being such a global and inter-connected marketplace, events from all corners of the globe can have an immediate effect on exchange rates and currency values. As the world’s biggest market with trillions of dollars in transactions, currency values and exchange rates can fluctuate greatly depending upon what is going on in world affairs. Some of the factors which are affecting the forex market are political events, natural disasters, wars etc.
The health of a nation’s currency depends on the actions of its political leaders. Therefore any change in a country’s government can affect its currency by altering the nation’s economic policies. Elections could be considered by traders and analysts as an isolated case, suggesting political instability,
something which usually triggers higher volatility in the local currency. In most cases, forex traders would just keep track of pre-election polls in order to get an idea of what is to come.
A natural disaster such as earthquakes, floods, hurricanes, and tornados harm the country’s citizens and its currency. Aside from dubiety from natural disasters, damage to major factories and distribution, and loss of life negatively impact a currency. Since the basic infrastructure is the backbone of an economy, damage to infrastructure is a major concern and can enormously constrict the economic output of a region. Moreover, any additional expenses, which could be used for economic progression, will be used for cleaning up and rebuilding following a disaster.
As discussed with disasters, the damage to infrastructure deals a huge blow to a nation's short-term economic viability, costing citizens and governments billions, most of which must be borrowed. War rebuilding efforts must often be financed with cheap capital resulting from lower interest rates, which inevitably decrease the value of a domestic currency. Volatility of currencies actively at war are typically much higher than those not involved in a confrontation.