Economy

How Politics Impact Forex (What should a trader look out for)

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One of the biggest things one needs to do when Forex trading is to keep an eye on the political landscape of the country’s currency you are either selling short or buying long. You may be asking yourself why this is, and in this article, we’ll look at political situations that lead to high levels of activity in Forex trading.

War Takes Its Toll

When a country shows any instability, one of the first things to happen is depreciation in its currency. Nothing screams higher instability in the 21st century than when a country goes to war. Should a head of state decide to step into a military conflict it will create great opportunities for Forex traders to start trading. Of course there are countries that are always more likely to go to war than others, so should a Forex trader make a correct call while spread betting at City Index on, say, a Scandinavian country going to war, the rewards would be handsome.

Differences In Policy

The current crusade by Donald Trump to impose higher tariffs on China in their trade agreement will be impacting Forex trading. The decisions made in this regard will have traders selling the US Dollar short as countries are bound to retaliate with higher tariffs of their own. When this happens, it affects the US currency. These situations also have the ability to cause long lasting conflicts, which will have traders watching how two countries interact well into the future. In the case of China and the US there are bound to be countless interactions that send each other’s economies either up or down against the other.

Internal Political Turmoil

It’s not only how a country conducts itself outside its own borders that Forex traders look at, but also how political agendas unfold within a country. An example would be the wave of far right political candidates that have been cropping up across European countries. These candidates are seen as controversial and contributors to potential political instability. In the buildup to an election, Forex traders will be watching these candidates and their level of support. Should a far-right candidate win it presents a good opportunity to sell a country’s currency short. On the other hand, one could be looking at countries with great track records of political stability, as the currencies of these countries are likely to rise against currencies affected by political turmoil.

What To Look Out For

Taking the aforementioned points into consideration, it is important to look as far into the future as possible when it comes to Forex trading. Although political situations can occur at short notice, in most cases signs of currency shifts will have plenty of tell tales. Keep an eye on current affairs and what policies the bigger world economies are adopting at any given time. Right now, Brexit is far from resolved, and any sudden change in the British agenda could lead to the British Pound losing ground to the US Dollar or Euro. Donald Trump’s ability to put out a suspect Tweet should never be underestimated, as well as the policies adopted by European countries regarding the migrant crisis.

While there are plenty of factors that come into play for a currency to rise or fall, politics is a key element of Forex traders looking for a good result.

(Photos: Pixabay)

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