Forex is one of the biggest financial markets globally. There is transaction every day worth over $4 billion all across the globe. With the market being an interconnected global market, events from all corners of the globe have an immediate effect on the market. The effects change the market rates and currency values to either decrease or increase based upon the event that occurs. Here we shall take up certain events that change the forex market.
Natural events or disasters:
Natural disasters can be catastrophic for any country, like earthquakes and floods; tornado's and hurricanes harm the country’s infrastructure and morale. Along with it, such disasters have a negative effect on the nation’s currency and rates. Along with the loss of life, damage to properties and major factories and distributors the uncertainty of events that take place creates a bad environment for the nations market and its currencies. Basic infrastructure is the backbone of any economy. Any break and damage to it will harm and affect the economy badly. The output of that region goes to the lower limits and hence affects the overall nation’s performance. With this comes the down of spending patterns of consumers who are uncertain of a set of events that may likely take place in the future.
The additional costs that arise in cleaning up the devastated places and rebuild any buildings are considered as a burden on the national economy, otherwise which can be utilized in the advantageous economic activities. This makes the economic strengths into economic weaknesses, when compared to other nations from the loss of others loss by filling the needs of those unable to import goods from the disaster stricken nation.
Any political event always has an impact on the nation’s economic growth. Especially, during the election that is seen in every nation. Elections can be looked upon as traders, which makes a nation's market volatile with uncertain outcomes due to the political instability. A change in the government means a change in the ideas and managerial thinking of the finances. Each person has an opinion and due to it, the instability increases. The next affecting factor is an Unannounced Election. It creates more chaos in the region, with the outcome prediction, if the vote comes as a non-confidence one, or a corruption or any other factor affects the currency value. Normally the political instability will outweigh any positive anticipated outcome, from a new government in the short term and the related currencies will suffer loss.
There are 2 types of war in these days. One is the currency war, where the nation them-self create, to devalue their currencies to aid their domestic economies in global export trading. Another one is the much-known one, the physical war. This physical war is much alike to natural disasters, which impacts the nation’s economic growth. As said above, with such natural and man-made disasters, the levels of damages and the money spending pattern and the money that government spends all affects the nation’s economy. War is more destructive than any natural calamities since it involves too much destruction than any other. Though the impact will be short term, it shakes up the whole economy of the nation to the worst possible extent.
War rebuilds are often financed by world banks or banks of that nation at cheaper interest rates, which inevitably decreases the currency value. Normally the volatility of the market increases of the nations in war than those that have not participated. Though there is evidence that a nation emerged better from the war, like the United States, it doesn't happen always. The USA is a developed nation and they have the backup power to bounce back soon and much stronger and influential. But few developing nations or even developed nations which are self-satisfied won’t be able to bounce back like this way. Even we know that German has emerged much stronger, that's basically there are many Manufacturing units there, applies to the USA.
Take away points:
Any nation’s economic growth affects their currency values. Any unseen disasters and events will never favour the currency but deteriorate their value altogether. It might be difficult to predict the unexpected in the forex markets, any informed trader will be able to react quickly to such events.