Last Updated on February 21, 2023 by admin
When planning for your financial future, you might consider how your money could be doing more for you. You may think of investing in the foreign exchange (forex) market, causing you to question what is forex trading and how can you benefit from it?
Investing in the forex market can help you to meet your financial goals more effectively, because it is fundamentally volatile, and this can provide opportunities to profit. You can profit on short-term changes in the market, opening a position when you believe prices are due to rise. Of course, this requires thorough planning, research, and understanding of the market and the factors that can affect it, as its volatile nature can also put you at risk of making losses.
Since the forex market is largely affected by the economic health of the world’s nations, and the fact that the COVID-19 pandemic has submerged much of the world into colossal recession, we will take a look at how this specific event has impacted forex trading.
Keep reading to find out more.
Table of Contents
Why macroeconomic factors affect the forex market?
Before we get into the COVID-19 pandemic specifically, let us take a look at why macroeconomic factors affect the forex market.
Unprecedented events, like the pandemic, create mass economic uncertainty, which in turn, influences trader’s decisions, with regards to the positions they hold. This uncertainty stems from the fact that the economic health of a nation can change dramatically, in a short-space of time.
Since this is a primary determiner of currency rates, traders will tend to adjust their positions, in fear that the whole landscape of the forex market will change. This belief that the market will change is known as market sentiment and can completely alter the state of the forex market.
How COVID-19 has affected the forex market?
The world’s economies have been devastated by the coronavirus pandemic, since many sectors were completely unable to operate during enforced lockdowns. Some of the hardest hit sectors were retail and hospitality.
Looking at the UK’s economy specifically — retail makes up 5% of the country’s total gross domestic product (GDP) and hospitality another 5%. Since these sectors contribute so heavily to the UK’s economic health, a complete halt of trade dramatically impacted the nation and consequently, its currency.
Of course, the pandemic has been anything but linear. Vaccines have been created and successfully rolled out, lockdowns have been lifted and then re-instated, and new strains of the virus have immerged.
All of this has meant that the forex market has been particularly turbulent, with trader’s reacting to the latest instalments in the news about the pandemic, and changing their positions based upon the optimistic or pessimistic nature of the updates.
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What could the future hold for forex?
Looking forward to the future, the world’s economies should begin to recover as country’s begin to learn to live alongside COVID-19. Understandably, countries around the world will not all recover at the same rate, and the rehabilitation of their economies will be dependent upon many factors.
These could include:
- The success of vaccination rollout programmes
- Their ability to maintain economic activity in all sectors
- The emergence of new strains of the virus
As the future becomes more certain, currency rates should become less influenced by the coronavirus pandemic.
Despite this, unprecedented events can always arise and affect the forex market, and it’s impossible to plan ahead for these situations. However, there are some events that you can plan for, like the release of a country’s unemployment rates, which is a key indicator of economic health.
This is an event plotted in an economic calendar, which is a great tool for any forex trader to employ, since it will inform you of the upcoming events that could affect your position. Should you plan, using this tool, alongside fundamental and technical analysis, you will lower the risk of making losses on your position, and put yourself in a prime position to profit from price movements.