LATEST EVENTS IN FOREX TRADING THIS MONTH – Island Echo
Forex trading is the buying and selling of different world currencies in a market where each currency is paired with another currency to provide relative value between the two. Forex traders buy and sell currencies to take advantage of fluctuations in their value to make a profit.
Forex trading has become increasingly popular in recent years with many people choosing to invest in the market, as well as financial institutions and global organizations. The ubiquity of the internet and the prevalence of forex brokers means it’s easier than ever to learn about different currencies and spot opportunities to make a profit when they arise.
The foreign exchange market is the largest in the world, valued at over £2 quadrillion and with a daily volume of $6.6 trillion, more than double the gross domestic product of the whole of the UK. It also sees the most active trading as investors are constantly buying and selling in order to make the most of any changes in the relative values of currencies against each other.
This means that there are opportunities for individuals to make money from forex trading. One of the most important aspects of forex trading is keeping track of the various political, economic, and industry conditions that can impact the value of a particular currency.
Factors that can affect the value of a country’s currency include:
- Interest rate
- Inflation rate
- A country’s economic policies
- Government debt
- Political stability
- Recession
- Export price
- Terms of trade
Traders need to keep abreast of global media in order to forecast potential market fluctuations, monitor the economic health of nations, and keep tabs on any potential instability. Traders who use spread betting need to predict which currencies will have a narrow spread between their ask and ask prices in order to capitalize on lower trading costs.
The last month in forex trading
The political turmoil that resulted from the Russian invasion of Ukraine resulted in unprecedented conditions in the global market. The seasonal patterns that prevailed in previous years were somewhat disrupted by atypical conditions that had a significant impact on all global markets, especially crude oil.
Commodity markets have been completely distorted by the breakdown of a number of global supply chains caused by the policies currently in place in China. This has a lasting impact on the price of electronics and other items which, in turn, impacts trading between some of the major players in the forex market.
Proposed rules for post-Brexit trade deals between the UK and Northern Ireland have caused lingering disputes between the European Union and the UK. As the legislation has returned to the lower house of parliament for a second reading, the European Commission is taking legal action against the UK which could lead to a trade war which would have a significant impact on the value of the pound sterling.
Central bank policies designed to try to limit the impact of soaring inflation could have an impact on the value of the US dollar and it has already posted a slight loss after the Federal Reserve announced an increase in rate on June 15. Although there is no intention on the part of the Federal Reserve to cause a broader slowdown, officials have warned that they will not hesitate to fight inflation, which raises fears that a recession is not inevitable.
The euro appreciated against the dollar when the European Central Bank published its financial statements at the end of June and data on business confidence linked to the German economy. In Japan, inflation was above the Bank of Japan’s target, causing the yen to lose against the US dollar as investors reportedly lost confidence in Japanese monetary policy.
The future of the forex market
Although there have been several periods of unprecedented activity in the forex market caused by unexpected and significant world events, things are calming down and it is possible to make predictions about the future of the markets. The EUR/USD market is still the currency pair with the most transactions, followed by GBP/USD and USD/JPY, although there was a notable increase in trading in USD/CAD and AUD/USD.
Inflation data is likely to be most useful when predicting movements in the forex market, so many traders will be watching closely to see what is happening with countries’ interest rates. Rising interest tends to boost a currency, while falling interest usually causes their currency to fall in value, so central banks will be under scrutiny from forex traders looking to get ahead of the markets.
Rapidly rising energy prices have seen the price of consumer goods rise to their highest level in three decades in a number of major economic areas. While some central banks are convinced that the resulting inflation is only temporary, the market is reacting to the expectation that interest rates will continue to rise in the second half of 2022.
As the global economy recovers after a difficult few years, it is likely that the forex market will regain some stability, assuming there are no more massive global events impacting the market and causing more fluctuations outside the range of what could reasonably be predicted. .
*Spread bets and CFDs are complex instruments and come with a high risk of losing money quickly due to leverage. The vast majority of retail client accounts lose money when betting on spreads and/or trading CFDs. You need to ask yourself if you understand how spread betting and CFDs work and if you can afford to take the high risk of losing your money.
