How does political crisis and natural calamities affect the forex market

 NATURAL CALAMITIES in forex

Natural Calamities in Forex make most traders sell off their positions in the market running to safe haven currencies.

Calamities such as floods, famine and drought,earthquakes, hurricanes and tsunami have a negative effect on the countries economy.

They inflict a serious damage on people and firms.

Natural calamities destroy tangible assets like buildings and equipment, killing people and destroying industries and firms.

These damages may lead to closure of some industries and cuts down production which is not good for the economy. This increases government expenditure as well as the country’s debt.

Serious earthquakes and tsunami have hit Japan several times. This is one of the major factors that have led to the slow down of japans economy(Japan tsunami and earthquake 2011)

How do natural calamities affect the forex market

The damage caused by these natural calamities may lead to closure of some industries and cuts down production which is not good for the economy.

This increases government expenditure as well as the country’s debt.

As a result, the countries currency in question falls in value.  Due to uncertainty, most investors will opt for higher yielding economies for their investment.

Also most traders will sell off their positions in the market running to safe haven currencies.

On contrary, it’s different for some countries like Japan.  Japan’s economy shows positive indicators of growth when in natural calamities crisis.

As traders expect the Yen to fall after such a tragedy, instead it makes strong moves in the market indicating appreciation in its value.

The yen appreciated sharply. This was due to investors belief that there will be large levels of asset repatriation to pay for claims and damages by Japanese insurance companies.

In addition, Japanese investors bring their overseas investments back home, hence strengthening the Japanese yen in the process.

POLITICAL CRISIS

Political factors like regime type, political stability, management, corruption, and trade laws affect economic development.

Regimes

When the govt changes, its possible to see changes in policy approaches to fiscal policy, trade and economic drivers.

Political environment provides a basis for businesses to develop, economic and trade relationships.

Elections also affects both domestic and foreign  investment.

This because people are not sure of the outcome from elections and changes that may come with the new governments.

For instance change in the US government with the regime of President Donald Trump has not left the dollar the same.