How do global events affect the forex market?

Summary: Forex Markets & The Role Of Global Events

11 May 2021 by IDFC FIRST Bank

Foreign exchange rate is one of the most important means through which a country’s relative level of economic health can be determined. It acts as a window to a country’s economic stability. Global events that can be political, natural or war-related in nature can have a huge impact on the foreign exchange market. The currency of a nation is more likely to strengthen if the government that spends irresponsibly is replaced with the one that is fiscally conservative. On the other hand, natural disasters such as hurricanes, earthquakes, floods, tornados or other calamities can have a catastrophic effect on a nation’s infrastructure, deplete resources and undermine economic productivity. Take for instance, the on-going Coronavirus pandemic, which has resulted in global economic losses and drastically fluctuated exchange rates.

Similar to a natural disaster, a war outbreak can also deal a big blow to the economic viability of a country. It inflicts major damage to infrastructure and costs the government, huge sums of money. What pushes the domestic currency towards devaluation are the cheap finances that are backed up by low-interest rates and utilized for rebuilding purpose. Owing to the uncertainty in terms of future economic expectations, nations that are at a higher risk of engaging in war also experience a higher level of currency volatility as compared to those not engaged in any kind of conflict.

Owing to the trillions of foreign exchange transactions that take place around the globe on an everyday basis, the foreign exchange rates can fluctuate greatly with altering market scenarios of demand and supply. Keeping a keen eye on the currency exchange rates is mandatory if you wish to send or receive money from overseas. Watch the video below to understand how the global market operates before you buy forex in India.

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