Large currency movements are often driven by multiple stories in financial markets and the direction of interest payments. For example, in the US, Fed Chairwoman Janet Yellen will leave her post in 2018 and a new Fed, Jerome Powell has been appointed by the President. Changes in economic and ideological policies between the outgoing chairman in the future will have an impact on the foreign exchange market.
The Many Stories
When it comes to financial markets, staying on top of multiple stories is crucial to your success as an entrepreneur. For example, in Great Britain’s vote to exit the European Union (EU), most financial markets around the world saw a drastic change in vote reaction. While this is a rare event, we cannot rule out events that could have a profound impact on the value of a penny. These events include but are not limited to the following:
Potential or actual change of government
Key announcements by finance ministers and central banks
Intervention of central banks
Wars and terrorism
Economic policies of different countries
In recent years, we have seen many events that have really affected the money market. The Euro was severely downgraded by England’s vote to exit the EU. The world economy was affected when the Greek government was about to go bankrupt. The Venezuelan Bolivar has become almost useless in their economic policies. These are just a few examples and many more.
A wise Forex investor follows the news because they can help predict the market. Revenue from following major news events can be large and losses can be minimal.
Interest payments are the most important long -term for monies. Globalization has made it easiest for investors to move money from one country to another in search of a higher yield. For example, an investor in the US can get an interest rate as low as 1% where in Argentina they get an interest rate of 20%. Where do you want to keep your money? If a central bank changes its principal interest rate, it affects the borrowing costs of individuals, corporations, and even the government. For businesses, higher prices mean higher borrowing costs, making capital investments less attractive. For individuals, this means higher credit card, auto, and mortgage payments, which are aimed at slowing growth. On the other hand, short interest payments, are often aimed at boosting economic growth.
In the long run, high prices will further slow economic growth. Interestingly, in the short run, higher interest rates are likely to be bullish for money. If investors move their funds to countries with the highest interest rates, the value of that money increases. Price action after judgments shows how monetary policy changes can trigger large movements that can last for days and even weeks at a time.
This article is provided by the Forex Traders Blog (FTB). FTB aims to inform Forex investors about technical analysis strategies and key news events that may affect the currency markets. Access to the blog is free.