The Influence of Politics on Forex Trading

At first glance, there may not seem to be any visible connection between politics and forex trading. However, what many people do not realize is that there is a lot of influence that politics projects upon the world of forex trading and that is what this piece is going to be about. The global economy is dependent to a great extent, on forex trading. This is because it provides a platform where all major and minor currencies are exchanged. It is these activities on the international stage that drive the economy of the entire world. 

That first point is clear and you may ask, so how does politics have anything to do with this? Well, the reality is that prominent political events have direct impacts on foreign exchange trading. For example, major elections in a country like the presidential polls often have effects on the national currency. As a result of the fact that the results of elections can go either way, the value of currencies becomes very volatile. But even after the presidential election results are out, the impact will still be there. 

Politicians direct influence

Elections are not the only way that politics directly influence forex trading. Another way is the politicians themselves influencing the sector directly. Politicians in government are able to do this by formulating and implementing certain financial policies. The nature of the financial policies will determine whether there will be an upward swing in the value or the currency or there will be a calamitous drop. 

This is the primary reason why the captains of industry and major stakeholders in the forex industry are very keenly interested in those who win elections. In fact, it is a common practice to see these business executives bankrolling elections or lobbying governments so that favorable policies can be implemented. 

Imports and exports

Another area of the link between political power and forex trading is that of importing and exporting. The entire planet depends on the import and export of all kinds of products, goods, and commodities. Now, the policies that govern the imports and exports of every country depend almost totally or at least to a large extent, on the ruling government.

Considering the fact that currency values are linked to imports and exports of a country, the policies (which are often determined by the politics) are determined and put in place by the government. This explains why countries who have a comparative advantage with imports and more powerful currencies often perform better than other countries with weaker countries and dependent on exports, usually of raw materials.

However, that is not all. Governments can actually employ covert methods like market manipulation to either increase or decrease the value of national currency. The recent controversy between the governments of the United States of America and that of China is over market manipulation of currencies where the latter has been accused of manipulating the value of its currency, the Chinese yuan.

Closing out:

Above were the some of the ways by which politics can clearly influence everything that happens on the forex trading floors worldwide, but there are more and more tricks coming up, it’s important to stay alert to all this as a trader.