Forex is a marketplace where you can easily buy and sell currencies, exchange them and earn profits. When looking for investment in the Forex market, many factors provide high instability and unpredictability to this market. Also, these exchange rates affect the country’s economy and currency value worldwide.
Among many factors like Government debt, Interest rates, Current account deficit, etc., another profound factor that makes the market highly volatile is the political landscape.
Two categories of factors influence the Forex market:
- Macroeconomic factors – inflation, debt, current account, etc.
- Non-macroeconomic factors – politics, elections, natural disasters, etc.
Political factors that affect currency value:
- Political instability and Forex market
Political unrest is not such an attractive proposition for investors. Hence, it has dramatic effects on currency values. Likewise, protests and instability in political affairs weaken the currency.
- Elections impact on Forex market
Elections ahead cause risk to the economy as one government will give charge to another one and who knows how better they would perform? It confuses the investors to put money, and as a result, the demand for currency increases when supply is lessened. Hence, elections are also an impending sign of political instability.
- Protests against the Government
Protests against the government are a sign of no confidence, impacting foreign investment. The investors will think hundred times before investing in such a country because there are fewer chances of getting profit in the highly unstable and disturbing situation.
- Fiscal policy impact on Forex market
The fiscal policy deals with managing the revenue generated by the government and its expenditure on various platforms. When the expenditure increases from the revenue, it causes a burden on the country’s currency value and demands for that currency increase. In this way, the exchange rates of two pairs differ, profiting the investors and, at the same time, devaluation of their currency.
How much and longer do Political factors affect the Forex market?
You cannot predict easily how much politics will impact currency’s value. Some political instability spans that can help us predict this impact are:
- Long-drawn: which lasts for weeks or even several months and pushes the whole economy into a devastating situation.
- Largely unpredictable: caused by various other side factors and politics start impacting the economy.
- Impact on allies: is happened because elections or political unrest in one country will not attract investment and encourage investment in allies countries.
The exchange market is driven by the economic conditions and factors that impact the value of that country’s currency. While in this situation, whichever country you are in or using any platform like the best South African Forex brokers and other factors, it wouldn’t change the situation. The political turbulence and its other side effects also affect the economy and, lately, Exchange rates. Hence, political turmoil is devastating for a country’s economy.