Geopolitics: The Impact of Political Events on the Forex Market

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Geopolitics influences the financial markets and the foreign exchange market is no exception. Political events such as elections, conflicts, and other major occurrences can have a significant impact on Forex trading. In this article, we will discuss the impact of geopolitical events on the foreign exchange market.

Election Cycles

Political elections are a pivotal moment for any country, and the forex market is no exception. An election can throw up surprises, with candidates winning or losing having a substantial effect on a country’s economy, the currency, and the forex market.

Currency depreciation is one of the most common effects of a presidential election. In most cases, the market would typically prefer a more predictable candidate rather than an outsider. Following the 2016 US Presidential election, for instance, the US dollar experienced a significant appreciation.

A country’s central bank typically enters a ‘policy pause’ ahead of a presidential election. This trend can be expected where the central bank may put interest rates and other economic policies on hold until the market gets a clearer insight into which candidate will win.


Geopolitical tensions arising from conflicts can have significant effects on the forex market. When conflicts arise, investors tend to flee the affected currency and other assets, leading to lower valuations. This impact can extend from several weeks to several years, depending on how long the geopolitical tensions go on for.

One of the best examples of this impact is the effect the war in Iraq had on the US dollar. Following the 9/11 terrorist attacks, the US invaded Iraq, causing turmoil in the region. As a result, the USD lost over 37% of its value.

Natural Disasters

Natural disasters are also known to impact the forex market. However, unlike political events, this impact can be short-lived, often ranging from weeks to several months. The disaster’s effect will largely depend on its magnitude, with stronger disasters having a longer-lasting impact.

The 2004 Indian Ocean Tsunami is an excellent example of a natural disaster that had a significant impact on forex trading. The tsunami destroyed entire cities, resulting in loss of life and property damage. The aftermath had a short-term impact on the currency markets, leading to a decline in the local currency affected by the disaster.

Trade Relations

Trade is a vital component of the forex market, and trade relations between countries can significantly impact currency trading. Trade agreements and tariffs between countries play a key role in how currencies are exchanged.

For example, China’s trade policies have a significant impact on the US economy, such as the recent trade war. This impacted the Chinese Yuan and the US dollar, particularly when the Trump administration threatened to impose tariffs on Chinese imports.


The forex market is complex, and geopolitical events can inherently impact it. As we have seen, elections, conflicts, natural disasters, and trade relations can dramatically affect currency trading. Nevertheless, forex traders can leverage these events by keeping themselves informed of the latest developments and positioning their trades accordingly.

As a trader, it is crucial that you do your homework thoroughly to ensure that you are aware of any political events that could affect your trades. Keeping up-to-date by reading news and analysis from reputable sources is key to stay ahead of the game.

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This post contains affiliate links. If you use these links to register at one of the trusted brokers, I may earn a commission. This helps me to create more free content for you. Thanks!