How global events impact the FX market

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EagleFX Team
EagleFX Team added a new post
10 months ago

Global events and how they are broadcast to the world can indeed have a significant effect on the strength of a currency within a particular country.

Nowadays with thanks to the internet, people have instant access to news from all corners of the planet meaning that financial markets can move in real-time. This is especially true when considering the Forex market and online trading platforms.

So what has happened historically to affect a Fiat currency in such a way?

If we jump back to 22 May 2014, there was a military coup led by General Prayut Chan-o-cha who is the Commander of the Royal Thai Army. Incredibly this was Thailand's 12th coup since the first in 1932.

The military claimed that they wanted to restore the country's political system. There has been a history of civil unrest between the red shirts of Thai party against the upper-class yellow shirts (the royal Thai color).

In the run-up to this coup, the Thai Baht experienced a low of 28.64 Baht against the US Dollar due to political uncertainty. There was a recovery up to 32.13 Baht just before the Military takeover and then the Baht experienced another dip just after, falling 31.01 Baht. This shows how volatility in a country can create uncertainty surrounding a currency.

We have similar volatility when we look at Brexit and the impact on the Great British Pound. Since 1992, The Great British Pound has floated on the currency markets. Traders determine the price - buying or selling. The uncertainty leading up to Brexit meant the pound took a hit. Since the referendum and after a date was given to deliver leaving the EU, the pound has stabilized around the $1.30USD for £1.00.

When looking at press releases, we can see the power that one Tweet can have on markets. Trump tweeted that there would be ‘’no way’’ that a Toyota factory would be built in Baja opposed to within the US which further strengthened the USD against MXN. He exclaimed that if the plant was to be built there, the alternative would be a massive border tax for importing cars to the US.

So we can see that global events and press releases do affect how much investors and traders are willing to pay for currencies.

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