The Political Factor on Forex MarketThe Political Factor on Forex Market
The forex market could be a global marketplace, where individuals, financial institutions, brokers for recommended brokers), organizations, businesses, and governments from all corners of the planet exchange currencies. The daily trading volume of the forex market is more than $6 trillion making it the world’s largest and most liquid market.
What Factors Impact the Forex Market?
Having such a world presence, the forex market is impacted by various factors. These are broadly classified into two categories:
Macroeconomic factors: These include rate, inflation, visible balance, the balance of payments, and government debt.
Non-macroeconomic factors: These include sentiment, speculation, acts of terrorism, natural disasters, major events (Olympics, pandemics), and politics (diplomatic relations, elections, assassinations).
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Does Political News Have a better Impact on the Forex Market than Economic Releases?
Typically, macroeconomic factors associated with a rustic tend to possess a far more significant and direct impact on its local currency. However, their impact is sometimes short-lived. This can be because experts from across the planet use sophisticated measures and analytics to create predictions of economic releases. Moreover, there are indicators of how good or bad the information may well be.
Let’s take the US NFP (non-farm payroll) report as an example. This is often the foremost market-moving economic release. Days or perhaps weeks before the discharge, experts from every corner of the globe issue their forecast of the headline figure. Moreover, the initial jobless claims report gives a sign of the strength or weakness of the subsequent NFP headline figure. Let’s say, the report misses or beats expectations despite all this. Due to technological advancements, traders and investors are quick to reply to the report. Yes, there’ll initially be wide price swings but, after some hours of this high volatility, the forex market settles again and waits for the following economic data release!
On the opposite hand, non-macroeconomic factors often don’t have a major impact on the forex market. However, more than those of macroeconomic nature, there are times when these factors have a more widespread and long-lasting impact. Among these non-macroeconomic factors is politics.
How Does Politics Affect the Forex Market?
While there are several factors that affect the flow of interchange and cause fluctuations within the value of currencies, traders often ignore the deep impact that politics can wear the forex market.
Politics can cause great uncertainty for traders and investors around the world. This can be because political events are typically:
- Long-drawn – over weeks, months, or perhaps years (definitely over some hours!)
- Largely unpredictable – thanks to the massive number of variables at play
- Involving more countries – implications for allies and adversaries are what even elections in one country have
Some geopolitical events, like Trump’s presidential win, the French elections, the US-China trade war, and Brexit caused more significant price swings within the currency market than even the foremost important economic data released by a rustic.
February 6, 2022February 6, 2022