European politics has been a hotbed of activity in recent years, with a growing emphasis on immigration, climate change, and a notable shift towards right-wing parties in many countries.
As a forex trader, even a seemingly unrelated political event in Europe can have a ripple effect on your portfolio. But by understanding the biggest changes and how they affect the forex market, you can become a more informed and adaptable trader.
Below, we’ll explore how some key events are impacting currency valuations.
Brexit and the British Pound
Brexit has been a major factor influencing the value of the British pound (GBP) since talks began in 2017. The uncertainty surrounding negotiations and the eventual departure of the UK from the EU led to significant swings in the pound’s value.
For instance, the pound experienced substantial declines during periods of heightened political uncertainty, such as the 2019 political turmoil over a potential ‘no-deal’ Brexit, falling to multi-year lows against both the euro and the US dollar.
Despite the UK officially leaving the EU in 2020, Brexit continues to affect British economics and influence the pound, with issues like ongoing trade frictions and economic policy uncertainties contributing to its volatility.
The Russia-Ukraine Conflict
The ongoing conflict between Russia and Ukraine has had a profound impact on the markets, causing significant disruptions by affecting commodity prices and investor sentiment.
For instance, the Russian ruble (RUB) saw dramatic fluctuations following the invasion, while safe-haven currencies like the Japanese yen (JPY) and the Swiss franc (CHF) saw increased demand amid the instability.
The situation remains fluid, with potential for significant shifts based on international support and diplomatic efforts.
Euro’s Global Status
The euro (EUR) has also been affected by wider geopolitical shifts. The European Central Bank (ECB) has emphasized the need to safeguard the euro’s status as a global currency amid geopolitical fragmentation. The euro’s stability and appeal to foreign investors are crucial for maintaining low borrowing costs and protecting against exchange rate volatility. The ECB has called for further reforms to strengthen the euro’s role, including developing a deeper market for euro-denominated debt securities and enhancing cross-border payment infrastructures.
Navigating the volatility
European politics can create short-term opportunities in the forex market that aggressive traders can capitalise on. But long-term success hinges on understanding the underlying fundamentals of the economies involved, including factors like interest rates, inflation and economic growth.
By staying abreast of these factors using intelligent tools like Tradu’s economic calendar, you can make informed decisions about which currencies to buy or sell, and for what reasons.
Regardless of your trading strategy, it’s crucial you use hedging strategies to help mitigate potential losses when political events cause unexpected market swings.