When you trade forex online, you are trading changes in the exchange rates of certain countries. When a country’s economy changes, the value of its currency also changes. Then, what is the easiest thing to affect a country’s economy? The answer is certainly the political conditions. It happens because all economic policies made and implemented by a country. Additionally, the country cannot be separated from the political role. According to Investopedia, political turmoil can cause a loss of confidence in a currency and a movement of capital to the currencies of more stable countries. Thus, political issues can affect the currency values.
Check out these several reasons why political issues affect currency values:
Election
The election period is a period of uncertainty. Thus, the political conditions, including economic policies, will be in uncertain conditions. This kind of uncertainty creates a large potential risk so that the owners of funds tend to secure their funds.
With the reduced interest of the capital owner for investment in the country, the value of the currency has decreased due to a reduced source of incoming funds.
Social Uncertainty
Besides elections, unstable social conditions also have a large influence on the value of currencies. When the population begins to distrust the prevailing government, social tensions can disrupt economic conditions.
This event can lead to the withdrawal of investment because the government fail in carrying out its duties and lowered the value of the currency.
Conflict Between Countries
State conflicts can also affect the value of a country’s currency. This is because conflict raises the potential for enormous risk for investment assets in a country.
For example, conflict can reduce the trade and business performance of multinational companies in a country. Moreover, if the conflict continues until there is a military confrontation, it will destroy the risk of investment assets . Then, no one is willing to accept this risk and choose to secure their assets in a safer country.
Political Comments and Controversy
The movement of a country’s currency is very much influenced by the issues and activities of politicians. When a state official issues a statement that has the potential to change the country’s political system or economy, the value of a currency will easily change.
For example, when the condition of the USD was weakening some time ago, a high-ranking United States government official said it was a good thing. Shortly thereafter, the value of the USD immediately decreased dramatically to reach the lowest point. In conclusion, the politics can affect the currency values seriously.
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