There is inter-connectivity between worldwide financial markets and they greatly depend upon macroeconomic and financial statistics. The same is followed by the Forex market. Currency rates – key tools in the market of foreign exchange – get affected by critical geopolitical events, basic statistical reports as well as financial news. The reflection of the effects of news on Forex markets can be best understood from the given below three scenarios.
Monetary Actions: Decisions on monetary policy by the major banks immediately impact currency pairings. Fast or slow changes in interest rates or speculations on what interest rates in the future might be because currency pairings to fall or rise at lightning speed. The first cut in rates of 0.5% (4.755 from erstwhile 5.25%) by the Federal Reserve of the United States on 18th September, 2007, following continual hikes of rates, pushed the Euro up against the USD. Suddenly, the dollar became less attractive with low rate of interest.
Macroeconomic Releases: The other important Forex news having immediate and strong impact on currency rates is macroeconomic reports and releases. This impact has been most noticeable whenever the quarterly data releases of the United States GDP are made. If certain unexpected comes out in the report, there are immediate and unpredictable fluctuations in the currency market.
When the advanced Q2 2008 report was released on 31st July 2008, there was a sharp spike observed in all dollar related pairings with a reported change of 1.9% against expectations of 2.3%. Strong volatility in the currency occurred immediately after the report was released.
Geopolitical Events: Global political events strong influence Forex markets. Political scandals, wars, elections, terrorist attacks, peace talks all have their bearings on the market. There is often great fluctuation of currency rates as a response to these events, which often lead to setting up new trends. The 11th September, 2001 attacks on the United States were followed by unforeseen geopolitical consequences like the war in Afghanistan. This led to higher allocations to defence in the US Budget and higher fiscal debts. All this had critical impact on Forex market.