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Factors That Affect the Forex Market

The forex market, or foreign exchange market is the largest and most active financial market in the world. Every day traders from all over the world spend transactions worth about $ 4 trillion. Given the scope of the foreign exchange market and the close relationship of its parts, the events from around the world can have an impact on exchange rates and the value of individual currencies. This article provides some typical global events and describes how they can influence the currency market.

Politics

Elections – is the most common political development in virtually every country of the world, which can strongly affect the position of the national currency. Traders may consider elections as the potential for political instability and uncertainty, which usually increases fluctuations in a particular currency or its volatility. In most cases, market participants simply follow the advance votes at the polling stations in order to assess the likely outcome of the election and the probable change of government.

Changes in government usually involved a new ideology for citizens, which in turn brings a new approach to monetary policy. The presence of both factors, especially the first of them, may cause severe changes in the value of the currency. In addition, political parties or individual politicians who are more concerned with economic growth in the country, tend to raise the relative value of the currency.

So if ” proekonomichesky ” candidate will lose about positions or lose power, traders can start actively selling currency as will be wary of a slowdown in economic growth, and low predictability.

Politics Effect

Occupy a special place unexpected choices. Whether they occur because of the vote of no confidence, corruption scandals, or in other circumstances, unplanned elections may weaken the national currency. This is especially true in cases of disagreement among the population, which is manifested in the form of protests, strikes and so on. Such events create a high level of uncertainty and political instability in the country.

Even if you replace the autocratic government comes more democratic and open from the economic point of view, market participants do not like the state of uncertainty caused by such protests. In most cases, political instability outweighs any expected in the near future improvements, and the national currency usually falls. In the long term, however, the state of the economy will be assessed on the basis of general principles and the value of the currency should stabilize in the mark, which would reflect the country’s economic prospects.

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Act of god

The effects of a disaster can be catastrophic for the country. Natural disasters such as earthquakes, floods, tornadoes and hurricanes can cause huge damage to the inhabitants of the country, its infrastructure and the morale of the people. In addition, such disasters have a negative impact on the national currency. Destruction of individuals, factories and distribution centres, as well as the concomitant state of uncertainty – is not the best companions currency.

Done infrastructure – a key issue, since it is the infrastructure is the backbone of any economy and its violation may significantly limit the production potential of the region. Moreover, to restore the area used funds from government and private funds can be used for cost-effective projects, and not on ” zalatyvanie holes” in infrastructure.

Add to this the likely reduction in consumer spending on a background of economic uncertainty and falling consumer confidence. In such circumstances, any strengths of the economy can turn into its shortcomings, especially when compared with other countries, which only benefit by filling the affected regions necessary goods and services. In any case, the disaster is almost certainly a very “hit ” on the national currency.

War

We are not talking about currency wars when countries are trying to devalue their own currencies to gain an advantage in world export trade. The focus is on the impact of military operations as such on the forex market and is usually not positive. As in the case of natural disasters, war is cruel and deep-reaching consequences. As already mentioned, the destruction of infrastructure has hit economic viability. Devastation is worth billions of inhabitants and the government, most of which need to borrow.

The recovery process is often necessary to finance cheap capital, which will be achieving by lowering interest rates. This, in turn, inevitably lowers the cost of the national currency. Also do not forget about the complete absence of certainty about the future, not only, but also in everyday life. The volatility of the currencies of countries that are actively engaged in hostilities is usually much higher than those whose governments refrain from confrontation.

Nevertheless, some economists point to this aspect, as an opportunity for economic growth. Sometimes war can provide the impetus for the emerging economy of development, especially the industrial base when it is necessary to focus on military production. Recall the United States of America during World War II.

After the bombing of Pearl Harbor, the United States entered the war, resulting in the country’s economy began to recover almost immediately after the Great Depression. Although this view confirms by historical precedent economists, most probably, agree that economic development at the cost of human lives is hardly worth it.

Conclusion

Here are just a few global events that can have a profound effect on currency markets. The key point is that the value of the national currency mainly depends on the economic strength of the country. Any state of uncertainty, which does not allow to rely on the predictability of economic forecasts, negative impact on the currency position. And although forex trading is impossible to prepare for all eventualities, the knowledgeable traders will quickly respond to global events than market participants, not sure of what steps to take.

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