World Events / War & Peace
The forex market responds to both economic and world events as trends affect the world’s currencies and countries both positively and negatively. A country that is viewed as being a safe haven for assets, though it might be participating in a war, could still see its currency increase in value; while a country that is viewed negatively and is not viewed as safe, such as Russia in its recent Ukraine invasion, might see assets flee from its economy and its currency depreciate in value even though they might feel as justified in their actions as any other nation. Other countries, such as Switzerland and Japan, that are not participants in a conflict might see their own currencies appreciate as assets flee to these “safe havens”. A stigma may linger over a country’s involvement in a conflict for many years or decades after the fighting is done, still affecting investor perceptions, investment flows, and currency valuations despite subsequent events that should have dimmed the collective memory of those events long past.
Economy
Economic factors have a large effect on the value of a nation’s currency. If an economy is growing within a country then the native currency will likely be appreciating in value due to capital flows that are seeking to participate in the economic growth that is taking place. Stock markets and property values will likely be rising while interest rates on bonds might be rising as well, all attractive considerations for foreign money to flow into a prosperous nation’s economy. However, if there is rising inflation, then typically this will influence a nation’s currency value to fall as its purchasing power erodes. A Look at GDP (Gross Domestic Product) is warranted by careful investors as well since this is an indicator of how much the economy in a country is growing (or declining) and is a good indicator of which way interest rates may be headed (i.e. currency values may rise when industrial growth and production are healthy).
Government Policy
Governments implement policies to encourage positive economic conditions which may result in an increasingly valued currency. Fiscal and monetary policies may be implemented to boost certain industries and segments of the economy. In conditions of economic bubbles or overheating, the central bank of a country may implement certain monetary policies to diminish the allure of certain investment markets. The huge financial resources that are controlled by governments and central banks make any decisions/policies implemented by them have a large impact on the markets they are meant to have an effect upon and can cause currency values to reach high levels of volatility. Intentional interventions may also occur by governments and central banks as nations attempt to either support their national currencies when exchange values reach undesirably low levels, or the converse when currency interventions attempt to de-value a currency to make a country’s export products cheaper in the global marketplace.
Natural Disasters
Typhoons, hurricanes, earthquakes, tsunamis will have an effect on a nations currency if they are large enough to have a major effect on the victim nation’s economy. In the recent related disasters in Japan that were caused by a massive offshore earthquake in 2011, which caused a tsunami, which in turn caused a nuclear meltdown at several power plants, the effect on the national currency initially was to devalue the currency as the stock market tanked and money fled the country. Later, the massive rebuilding needs of the country caused a large amount of funds to flow back into it, thus reversing the currency’s decline and returning it to higher exchange levels. In nations that have experienced recent disasters of a large scale its citizens may become conservative in their spending habits leading to a reduction in economic growth within that country, causing less foreign investment and declining currency values as a result.
International Trade
The demand for a country’s products and services directly relates to its currency’s value. Imports may be higher than exports creating a trade deficit and causing the domestic currency to fall in value. The statistics for the “balance of payment” within a country plays a very important role in determining money value. The formula takes into account their current account (goods bought and sold internationally) + capital account (disposable assets that are non-financial in nature) + financial account (the cross-border flow of money). If a country runs a trade deficit for long enough the value of its currency usually declines leading to higher costs for imports and a natural balancing as people buy fewer imports. If a country runs trade surpluses over time then the opposite process occurs as its currency appreciates in value and its exports become more expensive.
Political
Political events have a large effect on investment flows into and out of countries, and thus on the values of currencies. Political instability can create a fall in a country’s currency values as scared money flows to safer places. Investor confidence in political leadership creates strengthening investment flows as capital flows into a country can be strong when stable leadership is in place. Upcoming elections can also affect a country’s currency value if they are perceived to have a de-stabilizing effect on the country.
These are just some of the ever changing factors when it comes to engaging in the forex market. Finding a competent forex specialist to help you navigate through all of these considerations can help you reach your investment potential with the help of healthy forex investment returns!
Happy Trading!
We are forex specialists and provide education, training, and software assistance.( http://www.forex-cta.com/downloads.html ) Please remember that every diversified investment portfolio should include a forex account.
Best Regards,
Barry Taylor
Managing Member
Forex Currency Trade Advisors LLC
www.forex-cta.com
barry@forex-cta.com
1-844-829-7857 (toll-free)
Forex Currency Trade Advisors, LLC is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold, or sell any currency. All opinions, analysis and information included herein are based upon sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including, but not limited to any representation or warranty concerning accuracy, completeness, timeliness or appropriateness.
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