Why Global Economic Events Influence the Forex Market

Why Global Economic Events Influence the Forex Market

Politics and economics are inextricably entwined. Recent political events, from the UK referendum last year to the US Presidential election, have all played their part in determining the current price of major currencies. For a forex trader, staying up to date with world events is critical.

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Brexit Triggers Sterling Crisis

When the UK voted to leave the EU, sterling slumped overnight to a 31-year low. It has since recovered, but with a UK General Election due to take place in the next few weeks and the French presidential candidate, Macron, looking likely to trounce Marine Le Pen in the polls, investors are holding on to their seats.

The forex market is driven by macroeconomic factors and major global economic events. Traders using Oanda make decisions based on economic and political events. If the markets lose confidence in a politician or the government announces a change in its fiscal policy, major currencies are affected. Upcoming elections are a good case in point, as we have already mentioned. A downturn in the pound against the dollar has a knock-effect in the forex market as a whole.

The Syrian Conflict

Capital markets are also affected by macroeconomic data. If the price of crude oil falls, economies that are heavily reliant on commodities will suffer the consequences. The Syrian crisis is an example of how geopolitical events shape oil prices, which in turn spill over into the wider financial markets, including forex. Tensions between the US and Russia are at an all-time low right now. If Trump takes further military action in the region, it could cause a rift between the major oil producers in the region and oil prices are likely to rise. This, in turn, will have an effect on the forex market.

The Rise of the USD

Conflict is not always a bad thing, at least in terms of the financial markets. The Japanese attack on Pearl Harbour propelled the US into World War II, which almost immediately ended the Great Depression. The US is now one of the strongest economies in the world and the USD is the highest currency in the world.

Fifty years ago, most people lived in a bubble, oblivious to what was happening on the other side of the world. Today, we only have to log into Twitter or Facebook to find out the latest news from Syria or what the exit polls are saying in the French presidential race. The evidence is clear. If you want to be a successful forex trader, you need to pay attention to what’s happening in the world of politics and economics.

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