The foreign exchange market is a truly global market. So even if there is a slightest movement in the geopolitical and economic factors, it is bound to directly affect the rate of currencies. This is mainly because any country’s political condition and economic performance can directly affect its currency strength. You will find foreign Investors are more attracted to invest in countries where there are fewer risks due to political tensions. A country having stable political situations tend to also have a stable financial and trade policies and these factors undoubtedly strengthens the currency strengths.
Take for instance the Brexit, US China Trade war or for that matter the US-Iran conflict, aren’t all these creating a sense of insecurity in the minds of global investors including you? The result of which we see is the increase in the levels of currency rate fluctuations and the slowing of trade across the world. Wars pose a setback in the value of domestic currencies and slashing of the interest rates. For the exporters, weakening of currency maybe an advantage in the short term basis but for the importers such scenario can be extremely costly.
Conflicts also lead to a huge level of uncertainty surrounding such conflicts on future economic expectations and the health of affected nations. Nations that are at war experience a higher level of currency volatility compared to those nations which are not engaged in the conflict.
Elections also have a greater impact on the Forex market. A change in governance following an election results to the imposition of new or modification of existing economic policies are costly. This can lead to a rise and fall in the currencies. A government that spends irresponsibly is replaced by one that is fiscally conservative and it is likely that such currency will gain strength. Lately, the dollar index for example is witnessing an uptrend and at times a downtrend too with Donald Trump- the President of US taking up extensive measures to boost US economy.
The forex market is not only affected by major political events; it can also be influenced by the outcome of a single governmental decisions. Lately the Indian government has been taking measures to boost the slowing of GDP and revive the Indian economy to new levels. One example in this line is the recent budget where we had seen the government tried to tweak the fiscal levers with intent to support the Indian economy.
Apart from political instability, global warming and climate change can also affect economic conditions of countries. Yes, you got that right and this is because, natural disaster like earthquake, floods, hurricanes, typhoons leads to-
A media report reflects due to the rising concern of global warming, the Indian economy witnessed a slash down by a margin of 31%. This fact came into highlight through a study published by the Stanford. The main proposition of the study was that, the Earth’s temperature has drastically increased inequalities. Further, climate experts have predicted that India in the coming days will be hit in worst ways due to climatic conditions. Occurrence of devastating effect of floods and heat wave is already a sign in this direction. This is not only a threat to the human life but one which will also affect the GDP growth levels in negative ways.
The economic factors which influence the forex market relate to indicator of economic growth (GDP), inflation level and inflation expectations, state of the trade balance, monetary policy of the Central bank and the unemployment rate and many more.
Any event occurring in the economy of the world’s largest powers, instantly affects the forex market. Thus, when getting involved in currency trading, a trader needs to study and analyze the most important indicators of the world economy, follow the news about the decisions of central banks regarding the monetary policy. Important economic factors confirm or reverse the trend for a long time, while retracements occur under the influence of less significant and unexpected news.
Thus, we find it is not just the economic strength of the country that influences the value of currency rates but global events too have a direct bearing on the rise and fall of foreign exchange rates. The uncertainty of forex market has always made trading extremely difficult not just now but earlier too, but now it seems the uncertainty has reached its peak. This mainly is a result of the aggressive steps taken up by the governments of both the developed and growing economies to boost the nation’s economic growth.
In order to avoid facing losses due to fluctuations in currency exchange rate as various global events take a toll over the forex market, it is advisable to plan ahead. This will assist exporters and importers from accepting any rates that are available to them.
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16 Oct 2019 04:12 PM
Excess of exports over imports results in a trade surplus which indicated a growth in the economy as there is more surplus funds at the hands of the consumers.
11 Oct 2019 04:16 PM
forward foreign exchange is a contract through which one can either buy or sell a fixed amount of foreign currency at a pre-determined price which is settled at a future date.
30 Sep 2019 04:51 PM
The interest rates are higher than the other economies, there is likely to be an inflow of foreign exchange thus making the local currency appreciates as demand increases.
23 Sep 2019 04:58 PM
Currency risk is the risk which arises with the change in value of one currency with respect to another,Managed by using derivatives products like forward contracts.
20 Sep 2019 12:52 PM
A cross border payment refers to transactions which are operated in atleast two different countries. The operations may be between individuals,financial institutions.
13 Sep 2019 12:56 PM
Foreign Exchange Swap is a contract which includes simultaneous borrowing and lending. It includes two transaction- forward and spot executed at future date.