The Forex market is considered the only marketplace that is in fact connected on a global scale. This just shows that a marked difference from stock markets are primarily used in a much more traditional form of investments. Because such turn of events in the marked areas, the market will carry with it the ability to significantly influence price levels and exchange rates.
The Effects of Political Events on Currencies
It might appear that there might no longer be a direct relationship between political events and the financial world. This however is certainly far from the truth. Political events can heavily influence the financial markets and change the present currency values. First, we start by discussing elections and its effects in the market which generally has one response: an expectation of uncertainty. As instability tends to increase and ambiguity rise, we tend to experience growing volatility which is a result from the effects of the financial markets. In the event of such cases, investors are earnestly trying to assess the policies and general direction that will be followed by the next government.
Although an election generally does not predict the exact direction that the prices will travel in the future, it does provide for which prices are more likely to start fluctuating at a rate that is much higher than its previous stable state which indubitably make the market’s behaviour much more erratic.
During these times, Forex investors are more likely to focus their attention to early poll results in order to get some sense of which political party will be elected and the subsequent direction that is likely to be implemented once that party should ever take office. If investors see that it will provide for a more financially conservative party, it would be inferred as an opportunity to purchase into the country’s currency, as the main priority which is economic development. Should the party be perceived as being weak on financial issues or perhaps more concerned with addressing social issues, the currency of that country could certainly experience a major sell-off.
Searching for Long Term Positions
When dealing with political events, the chief factor to watch for is the level of ambiguity that will result if such turn of events will develop. Events like public protest and employment strikes will lead many investors to start selling the currency of that country. One thing to bear in mind is that in many cases, political events will be regarded as something that will only have a limited effect on the market behaviour for that region.
Since political parties tend to stay in power for a term of several years, investors’ reactions to such events are not likely to redound quickly. For this very reason , it is very important that Forex investors remain cognisant of such events as they can be very helpful in establishing long term currency positions despite the change in political view points by the government.