It is not a secret that politics and political news has a massive influence on a country’s economy. As a result, it also affects the country’s currency. The biggest impact is caused by the news of great importance, which may lead to political instability. Such news includes the impeachment revolutions, death of political authorities, or elections.
Key Takeaways🔑
| →Politics and political news play a significant role in influencing a country’s economy and its currency. |
| →Major political events, such as Brexit, can lead to drastic market changes, including significant currency depreciation. |
| →Unpredictable events, such as terrorist attacks or natural disasters, can also impact the market significantly. |
Contents
Brexit as a political news
To illustrate this, I will use an example from the United Kingdom. Britain held a referendum on Brexit on June 23, 2016. People voting on such an important matter affected the British economy as well as the British pound. The British currency has fallen by 10 percent against the dollar. The day after the vote, it has hit its lowest level in 31 years. This started the massive sale of the pound on the markets and buying other stronger currencies.
There are plenty of events that may influence the markets other than political news. Especially those sudden like terrorist attacks or environmental disasters such as tsunami, earthquakes, or droughts.
Such unexpected breaking news will have a much stronger effect on the market than scheduled publications. You can read more about trading with the news.
Best of luck!
Pros and Cons of Trading Based on Political News👍👎
Pros:
- 📈 Greater Volatility: Political news can cause significant market movements that traders can potentially benefit from.
- 📰 Abundance of Information: There is a continuous stream of political news that can be analyzed.
- 🌍 Diversification: Trading different currencies affected by various political events can potentially mitigate risk.
Cons:
- 💥 High Risk: Political events can be unpredictable, resulting in sudden market shifts that could lead to losses.
- 🕰 Requires Time and Expertise: Understanding the potential impact of political news requires a significant amount of time and knowledge.
- 🔀 Complexity: The correlation between political events and market responses isn’t always straightforward.
| Notable Political Events | Impact on Currency |
|---|---|
| Brexit Referendum | The British pound fell by 10% against the dollar. |
| US Presidential Election 2020 | USD fluctuated due to uncertainty and changes in economic policy. |
Q&A Regarding Political News and Forex Trading🎯
- Q: How does political instability affect a country’s currency?
- A: Political instability often leads to economic uncertainty, which can devalue the country’s currency as investors seek safer assets.
- Q: Can we predict the impact of political events on the currency market?
- A: While market reaction can’t be predicted with 100% accuracy, studying previous events and market behaviors can provide valuable insights.
- Q: Are political events more influential on currency than economic events?
- A: Both have significant impacts. The influence of a specific event would depend on its nature and the current economic-political context.
- Q: How can a trader stay informed about relevant political news?
- A: Regularly following reliable news sources, economic calendars, and political analyses can help.
- Q: Is trading based on political news suitable for every trader?
- A: It depends on the trader’s risk tolerance, knowledge, and experience. New traders should tread carefully and seek professional advice.