National Elections and the Value of Currencies

When dealing in forex we should be aware of the factors that affect the value of currencies. One factor is when a country, that is a major global forex player, has an on-going national political exercise, like a national election.

It is a common occurrence that foreign investors assume a wait-and-see attitude when a major election is in progress. When a political candidate is ahead of the political race but who does not have the confidence of foreign investors the economy is threatened and a marked weakness in its currency is noted. The value of currencies depends on the interest rates that the government of the currency dictates and the government is often dictated by international market forces.

When foreign investors gesture to move out of a country the government lures them back by lowering interest rates. Thus, the value of currencies is heavily influenced by how stable their economies are. And the stability of economies is dictated by the stability of their political situations. Thus, it is common for powerful candidates during election time to woe the support of big multi-national investors especially when they have won the electoral race.

When a national election is won by a presidential candidate popular with the people but not with the international business sector - and there are reports of possible capital flight out of the country - this is the best time to withdraw any forex trading with the country's currency before the worst finally happens. Always remember that often the value of currencies dwindles when their host country has a deteriorating political situation during or after a major election.

This is also the reason why national figures are so pressured by the "international community" when governance is deemed in a state of decadence. They fear the eventual debacle of the economy and a fearful devaluation of their currency. The value of currencies is very much affected once the international community begins to look negatively at the host countries of those currencies and foreign investments are withdrawn.

Speculators are quick to pick up on these developments. Once a major national political crisis is impending, speculators are there ready to see how the situation will turn out. In a way, speculators also sometimes contribute to how investors see the situation because the latter often look at things through the former's eyes - and thus the value of currencies are eventually affected.

Thus, to protect our forex investment we ought to also watch the political scene of the country that hosts the currency we're trading in.