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How Global Events Impact the Forex Market

15th February 2018 Print

The Forex market focuses on foreign exchange and this is now the largest financial market in the world.  Each day, participants from around the globe engage in over $4 trillion worth of foreign exchange transactions.  As the forex market is such a global marketplace, different events from all over the world can immediately affect currency value and exchange rates.  Here, we’ll discuss a number of global events that can influence the forex market.

Political Events 

As an investor, you may wish the head of government remained neutral on matters that could impact the Forex market.  Perhaps you would like them to hold off on their latest Brexit speech or brush over a key policy matter?  Important keynote speeches can play havoc with your current investment strategy.  Any election – in almost every nation – can directly impact the country’s currency. 

Elections are often viewed by traders as events that can potentially impact the bottom line, which will typically equate to greater volatility in the country’s currency.  Unexpected elections or an unexpected vote can cause major upheaval.  These events can often cause prolonged political instability.  New research from ETX Capital highlights how large fluctuations in the value of sterling can be seen directly after Theresa May’s speeches.  

Last year, we saw the pound rate fall against numerous currencies, including both the dollar and the euro.  May’s speeches that outline her approach to Brexit certainly has a significant impact on short-term movements.  Just a week after voting to leave the EU, the pound hit a 31-year low against the dollar, however, after the announcement of her premiership, the pound had recovered to trade at $1.32.   Theresa May’s support of the Remain campaign was definitely a welcomed piece of information from investors.  Conversely, sterling dropped by 0.4% against the euro after her keynote speech at the Conservative Party conference on 5th October 2017.  It’s clear to see that May can have a significant impact on the Pound, which will directly impact the Forex market.

Natural Disasters

The fallout from any natural disaster can often be catastrophic for a country.  Natural disasters including tornados, floods, hurricanes and earthquakes can have a detrimental impact on a country’s infrastructure and citizens.  These types of disasters can also have a negative impact on a nation’s currency.  

After any natural disaster, infrastructure damage is always a key concern.  The additional costs associated with clean up and rebuild after a natural disaster can impact on government and private spending.  If you then add a probable decrease in consumer spending due to new economic uncertainty to this, it’s clear to see how a natural disaster will almost surely hit currency levels hard.  

Determining the Bottom Line  

These are just a couple of events that can have a significant effect on currency markets.  As you can see, the key point to take away from this is that much of a currency’s value is derives from the economic strength of a country.  Any unforeseen uncertainty in predicting future economic output will have a negative impact on currency levels.  Regardless of whether you’re a novice in the Forex market or someone with a well-planned strategy, it’s important to take into consideration how global events can impact the Forex market.