Currency Trading During Times of Political Uncertainty

Political uncertainty is a major force that drives the currency markets. When a country’s government is in turmoil or changing, or when it is under geopolitical pressure, the value of its currency typically becomes unstable. Currency traders know that instability at currency values usually creates opportunity at the trading level. Yet, paying close attention to the world of political uncertainty brings huge rewards even for the most basic Forex trading strategies. Understanding the bigger picture helps traders to avoid significant risk and increases their chances of making profit.

The financial world frequently feels the effects of political uncertainty, and what ripples through can hardly be called a “message” of reassurance. Traders spotlight the policies and positions of candidates during the run-up to elections. A cadre of potential officeholders sometimes threatens to reshape the national economy, and the prospect of such a dramatic change naturally ruffles investors’ feathers. Remarks from the radical wings of various parties can lead to heightened volatility in the financial markets. The tone of the national debate can be felt in the value of the national currency.

These dynamics are extremely well-known to traders, and many of them see opportunities to profit from the swift price changes that they can create. For instance, if a country’s government announces a sudden change in monetary policy during a period of political upheaval, the currency could rise or fall dramatically. This depends on the level of confidence the markets have in the government and its policies. Experienced traders tend to view such governmental pronouncements as potential profit opportunities if they can figure out which way the currency is most likely to go.

Uncertainty caused by geopolitical realities is not always clear. Wars, sanctions and international conflicts can destabilize a country’s currency. Sanctions are awfully bad for economies based on export earnings. Stricken currencies essentially devalue because investors flock to safe houses. Traders are more focused at these times on more stable markets such as the US dollar or Swiss franc.

Image Source: Pixabay

Politico-stability is, by contrast, most often felt in emerging markets. These are market currencies and therefore sensitive to that change in the investors’ attitudes. Just one incident- corruption scandals burst or sudden regime shifts- and foreign capital bolts flight. That has consequences that extend far beyond the local market into the global trading network for money.

For traders, those intricacies translate into knowledge. In making the correct call you should take into account the following news, the market reaction and historical trends. There are also the economic calendars that most traders use which contains important political and economic developments that will affect currencies.

As for political risk, sure, there are dangers, but there are also pitfalls. A few traders handle such situations sensibly, but in a good way and gaining an advantage. Forex Trading not only in the future of numbers but also human psychology, government response, world events as well – it is always coping with the unknown and being ready for the next thing as well to trade successfully.