When you think of forex and its contributing factors, one that is often forgotten but plays a very large roll, is Politics.
There are so many political issues that can lead a currency to go up or to go down and because of that, the traders then are more or less willing to dabble in that currency. There are numerous examples of this that explain it a lot better.
If a countries government is very unstable, it could change overnight without anyone really knowing what or why. The changes a new government could make to its economy could drastically change its growth. This is the only thing that anyone could know for certain. If you look at Zimbabwe’s economy, because of its poor political and economic choices, they have a 10 million dollar bill that is almost completely worthless.
When a country has a new government that is well known for its fiscal responsibility, this would have a positive effect on the forex market. Forex traders would be more likely to believe that this currency would go up over time and the chances of any nasty currency issues would be low as the new government is far more fiscally responsible than the last.
Interestingly, when there are a lot of issues with the economy of the world, one of the currencies that is always snapped up is the Swiss Franc because it is known to be very safe.
As Switzerland is categorized as isolationist, their Swiss Franc is a good example of a safe currency. Currencies that traders call ‘safe havens’ are ones that might not have so much movement because they are very steady, however, they are safe to put your money into.
It is important to note these kinds of political situations as a trader. But there are more economic factors that play a role in how the Forex market behaves.
Recent Comments