The Foreign Exchange or Forex or FX is the biggest and most active financial market in the world. Every day, participants from all over the world engage in trillions worth of foreign exchange trading transactions. 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 a global and inter-connected marketplace, events from all corners of the globe can have an immediate effect on exchange rates and currency values.
In this blog, we will explain the most important political and economic events which affect the Forex market.
War and Currencies
The impact of war is brutal and widespread, the damages of war to infrastructure deals a huge blow to a nation’s short-term economic viability, costing citizens and governments billions of dollars. When there is a psychical war or a trade war hits it tends to impact the Forex market negatively and currencies tend to lose their value due to the tension created by the war.
Every war ends up with a huge loss of billions and it impacts the global economy drastically. Not only during the war but after the war ends the damage created by the war gives deep scars and it takes a lot of money to rebuild and restore the economy which requires finance and often many countries forced to offer cheap financing options which offer lower interest rates and thus it devalues the country’s currency which again impacts on the economy of that country.
Political Stability and Performance
A country’s political state and economic performance can affect its currency strength. A country with less risk for political turmoil is more attractive to foreign investors, as a result, drawing investment away from other countries with more political and economic stability. Increase in foreign capital, in turn, leads to an appreciation in the value of its domestic currency. A country with sound financial and trade policy does not give any room for uncertainty in value of its currency. But, a country prone to political confusions may see a depreciation in exchange rates.
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