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 can have a huge impact on the foreign exchange market. 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. Here are a few global events that can influence the forex market and can help you in understanding better how the market operates before you buy forex in India-
Actions and decisions of a country’s political leaders have a significant impact on the nation’s currency strength. The arrival of new government post elections often leads to a situation where new economic policies are imposed or modifications are made in the existing one. This results in rise or fall of the currency. 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. The currency will decline if the government in power has a tendency of introducing policies that are not in favor of businesses. Besides major political events, the outcomes based on a single governmental decision can also influence the forex market.
Natural disasters such as hurricanes, earthquakes, floods, tornados, etc. can have a catastrophic effect on a nation’s infrastructure, deplete resources and undermine economic productivity. The loss of life, widespread damage coupled with the uncertainty that inevitably accompanies natural disasters can lead to currency decline. The extensive damage to infrastructure which is the backbone of any economy results in drainage of funds for repairs and for the affected areas to function properly. Therefore, government and private spending that could have been utilized for productive purposes and for pushing economically advantageous ventures go into improving calamity-hit areas.
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.
Concluding, a country’s currency is dependent on its economic strength and any adverse global events can lead to unfavorable occurrences in the forex market.