Global events have the potential to provide massive swings in forex trading anywhere in the world. The reality is that many events, both global, national, and even local can trigger movements on currency floors in the first few minutes or at worst, hours. These developments are important to analyze to understand the drivers of the currency market and for the traders that operate the FX market to consider in order to make appropriate strategies.
This can be regarded as one of the most important and influential in the global scale factors that enable change in the forex markets. As such politics including the election periods, wars, and diplomatic instances may make the market unstructured and that often results in high volatility in the rates of foreign exchange. If a country has political instability then this usually has a negative impact on the currencies through the flight of capital. For instance, civil unrest leads to a depreciation of the domestic currency because investors are threatened by political events to lose value. On the other hand, if a nation is considered politically stable then there is an appreciation of the currency since investors turn their faith to the countries’ banking system. To the traders in fx trading, the behavior of various countries politically is very important in that it will help one to predict the changes in price of the currencies in cases of volatile political environments.
Other volatile factors that impact on forex markets include economic reports and data releases. It was important to make reference to key variables which indicate the economic performance of a country, including Gross Domestic Product, employment statistics, and Inflation rates. Usually, sound economic reports encourage investors, and this in turn puts pressure on the value of that country’s currency. On the other hand, unfavourable economics have the effect of lowering currency prices following the implication of a slowdown.
Natural disasters are comparatively more erratic, but they can also affect forex markets in some way. Some examples include earthquakes, floods, hurricanes and the likes, of which can affect a country’s economy in a way that causes volatilities in the financial markets temporarily. It often takes months and even years for a country’s economy to regain its strength after a disaster; the process causes changes in the country’s currency values to reflect oscillations in the financial markets as it becomes their task to predict the long-term effects. Furthermore, they cause changes in balance of import/export as severe communication impacts the future business relations.
Central bank policy is another one of the global factors that can have a very much influence on forex markets. Central banking institutions do have the great responsibility of setting up a country’s monetary policy owing to the stabilization of a country’s currency systems. Fluctuations in interest rates for instance, can cause wide fluctuations in the price of currencies. The central bank tends to appreciate the currency value when it increases interest rate since high rates come with higher foreign direct investment. Lower interest rates, in its turn, may exert a negative impact on the currency as they may discourage those who would wish to invest in that country.
But in this type of trading especially in the fx trading it is essential to know how events affecting the market occur. Each large event, political, economic, and even natural, possesses the potentiality of giving an impetus to the appearance of sharp fluctuations in the rates of currency. It suggests that tapping the information sources that identify the forces impacting the global economy, a trader improves his ability to make correct prognoses and, consequently, pertinent decisions. Realization of such occurrences assist in risk management and exploitation of opportunity that enhances trader performance in the volatile foreign exchange market.
