Large movements in currencies are usually driven by big stories in the financial markets and the direction of interest rates. For example, in the united states, the President of the Fed Janet Yellen will be leaving her post in 2018, and a new and Bold, Jerome Powell, has been appointed by the President. The changes in economic policies and ideologies between the departure of the President and the incoming one, will have an impact on the foreign exchange market.
When it comes to the financial markets, stay on top of the great stories is critical to your success as a trader. For example, when Britain voted to exit the European Union (EU), the majority of financial markets around the world saw large swings to the downside in reaction to the vote. While this was an extraordinary event, we cannot rule out the events that can have a profound impact on the value of a currency. These events include, but are not limited to, the following:
Potential or actual changes in the government
Important announcements by the finance ministers and central bankers
The intervention of the central banks
The wars and terrorism
The economic policies of the different countries
In recent years, we have seen many events that have dramatically affected the currency markets. The Euro was dramatically skewed with England voting to leave the EU. The world economy was affected when the Greek government was on the verge of bankruptcy. The Venezuelan Bolivar has been rendered almost worthless by their economic policies. These are just a few examples but there are many more.
A wise foreign Exchange investors follow the news as that can help to predict the market. The benefits of following major news events can be large and the losses minimized.
Interest rates are the most important long-term driver of currencies. Globalization has made it easier for the investor of two to move money from one country to another in search of higher performance. For example, an investor in the united states can obtain an interest rate of less than 1% in Argentina, you would get an interest rate of 20%. Where would you rather have your money saved up? When a central bank changes its key interest rate, has an impact on the borrowing costs of individuals, corporations and the government. For companies, the higher rates mean higher borrowing costs, making capital investments less attractive. For individuals, the greater will be the credit card, the car, and the payments of the mortgage, that are aimed at slowing growth. The low rates of interest, on the other hand, are usually aimed at boosting the economic growth.
In the long-term, high rates tend to slow down the economic growth. Interestingly, in the short term, higher interest rates tend to be bullish for the currency. When investors move their funds in countries with the highest rate of interest, the value of the currency increases. The price of the stock after the decisions, shows how monetary policy changes can lead to big movements that can last for days and even weeks.
This article was provided by the Forex Trader Blog (FTB). The FTB aims to keep the Forex, the investors are informed on technical analysis strategies, and important news that may affect currency markets. The access to the blog is free of cost.