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How Does Politics Affect the Forex Market?

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  • How Does Politics Affect the Forex Market?

    Foreign exchange (forex) trading is a truly global marketplace, growing ever more popular as a way to make money.

    In order to successfully trade currency, it is necessary to be aware of the ebb and flow of the global markets and to stay abreast of developments that may affect the relative value of currencies.

    There are many factors that affect the forex market, and as well as purely economic, data traders are on the lookout for political upheaval, natural disasters, or positive events such as major sports tournaments.

    These macroeconomic events are more important to be aware of than ever, due to the global and fluctuating nature of forex trading.

    Political factors

    Political turmoil profoundly affects currency prices.

    Major political changes, such as Brexit, can cause a country’s currency to plummet in value, as uncertainty and confusion affect markets. Elections are events that occur in the majority of countries in the world and can cause currency rates to become volatile.

    Again, this is due to uncertainty and instability, especially in a country with regular political upheaval.

    A good rule of thumb for a forex trader is to keep an eye on the exit polls and assess the likely political and economic implications of one leader or party over the other.

    Countries such as Israel have political parties with radically different ideologies, and as they have a system of proportional representation, coalition governments often have to be formed between major centrist parties and those on the fringes.

    Differing ideologies often boil down to different approaches to the economy, and if an incumbent leader is likely to be ousted, the country’s currency is likely to devalue, even if the incoming government’s fiscal policy is one of growth.

    How to read the forex market

    It is important to be well-informed about events happening around the world. Beyond the financial news, take time to read about politics, socio-economic situations, and upcoming events.

    Market analysis is a crucial part of being a successful forex trader, but sometimes, in a particularly uncertain situation, it may be prudent to enlist the help of a broker.

    There are many resources online, designed specifically to allow you to compare brokers, to pair you up with one with the most expertise in market analytics and trading signals, and who should be able to help you navigate choppy political waters.

    When there are upcoming elections, be sure to read up on who is on the ballot and who is likely to win – and the potential political and economic fallout. Although nothing is certain in either politics or forex trading, staying informed is essential.

    Natural disasters

    Large scale natural disasters, such as the Japanese earthquake and tsunami of 2011 are catastrophic events for a country and its economy.

    The loss of human life, destruction of property both residential and commercial, and the sense of despair among survivors all negatively affect the value of the nation’s currency.

    Worse still, the damage to industry and infrastructure, loss of tourism, and loss of workforce personnel mean that it can take years for the economy to recover.

    When a country is spending money on repairs rather than growth, it is bad news for currency rates. And it becomes a vicious circle, with less consumer spending as the economy suffers.


    War affects a country’s economy like nothing else. All resources are poured into it, infrastructure is destroyed, people are displaced, or lose their lives. The enormous volatility and uncertainty surrounding a war also radically devalue the currencies of the countries involved (or the country, if it’s a civil war).

    Again, the rebuilding process after a war can be lengthy, and the total loss of industries such as tourism can take its toll on the economy. At the same time, an economy can be boosted by war, propping up heavy industry and production.

    The value of a country’s currency is determined by economic strength, which is affected by all macroeconomic events.

    As a forex trader, it is important to try to anticipate any political eventuality which will lead to a rise or fall in currency values – even though the world is a highly unpredictable place.

  • #2
    I think everyone will agree that economy and politics are two directions that are interconnected at all stages. And this is really significant because it is economic and political decisions that usually have a direct impact on a country's financial turnover. Besides, as it was said here - many events of fundamental analysis that we use to understand how to work in the market in the near future - these include political decisions, where countries agree that they will unite for some cooperation or will support each other at every stage. So, exactly for this purpose we have to follow the news and analyze everything that happens in the world.


    • #3
      Such articles make me think about how everything is connected in this world, and that every event that occurs leads to certain consequences and can fundamentally change the situation.
      I agree that all these events are connected with each other and should be included in the analysis. But sometimes it is more difficult to understand how political events will reflect on an asset. Especially when it comes to some internal moments in the state or presidential elections, etc. But on the whole, this is also characterized by certain speculations on the market; they are usually more short-term and not as strong, but again it all depends on the circumstances.


      • #4
        Politics does affect the forex market. in forex we do trade gold and oil. The government is in control of these commodities and if it decides to raise the prices or make some restrictions then there is going to be an effect in the forex market. It may be a very strong effect or a weak one depending on what the government is after. It is however not in most cases that he forex market is affected by the governments decisions because there are a lot of other factors that affect the forex market. If the other factors remain constant than the market will still be running smoothly. This is my thought, I am sure that that there are a couple of other ideas too.


        • #5
          I would advise all my colleagues to pay attention to this area, because today many processes are based on politics and you can always build a market analysis based on this. Of course, it takes a certain amount of time to understand all the nuances - this is the pure truth. But there are also a couple of secrets that you can include in your work. First, you can start with some major political events, which are related to large countries - accordingly, it will be easier for you to follow the strong changes. In addition, you can include analytical reviews from independent resources, where you can see the forecasts of specialists, which can also be useful in making decisions.


          • #6
            Usually politics should not have such impact on forex market. However, as we have seen recently, politics are interfering too much into economy, like US-China war. It has never been good idea to leave economy to politicians to lead


            • #7
              Originally posted by Rogers View Post
              Usually politics should not have such impact on forex market. However, as we have seen recently, politics are interfering too much into economy, like US-China war. It has never been good idea to leave economy to politicians to lead
              Completely agreed. Hedge funds are those really rigging the market. However, politics acn always interfere that rigging.


              • #8
                Economy and politics are two spheres that constantly interact with each other and cannot exist separately. Managing a strong economy requires an equally strong government and, if there are flaws in its actions, it will immediately manifest itself as an economic downturn. The opposite is also true. If the economy is in decline, but strong leaders come to power and begin to engage in well-directed activity, they are likely to be able to regain lost ground. Without strong power, the economy cannot exist in the country, just as the country itself is impossible without the economy. The conclusion here is quite simple - the influence of economy and politics on the Forex market is equal.
                It is possible to consider this issue from the other side as well. In the financial market, traders use the metatrader 4 trading platform to exchange monetary units of each country that is a derivative of economic activity, not political. As a result, currency prices are formed depending on the import, export, construction and production performance. Real economic factors cannot be completely suppressed by political force.
                Anyway, any participants of the Forex market are accustomed to believe that the euro is more influenced by politics and the U.S. dollar by the economy. It is impossible to argue with these statements, but it is important to understand that financial markets can change significantly depending on the season or other important events. Therefore, traders must understand that the degree of influence of political and economic factors in the currency market changes periodically.