When you think of forex and its contributing factors, one that is often forgotten but plays a very large roll, is Politics.
There are endless political issues that can cause a currency to go up or to go down, traders take note of this as it affects their intentions to dabble in a particular currency. Here are some examples to better explain this.
If, for example, a particular government is quite unstable, that government could in fact change tomorrow without anyone knowing exactly why. They do know however, that as the government is so unstable a change could have adverse effects on economic growth. Using Zimbabwe as an example, they have a ten million dollar note, yet its value is almost nothing.
When a country has a new government that is well known for its fiscal responsibility, this would have a positive effect on the forex market. Forex traders would be more likely to believe that this currency would go up over time and the chances of any nasty currency issues would be low as the new government is far more fiscally responsible than the last.
Interestingly enough, when there are a lot of problems going on in the economic world, one of the currencies that are always gobbled up is the Swiss Franc because it is known to be very safe.
These currencies that people call ‘safe havens’ are ones that might not have as much movement because they’re so steady, but they’re safe to put money into. They won’t collapse the next day. The Swiss Franc is especially an example of this because Switzerland is an isolationist.
As a trader, you can see how important it is to look at this sort of situation. However this is not the only factor that a trader should look into when considering dabbling in Forex.
