Monumental impact on the forex market: Wouldn’t it be great to have a crystal ball that predicts future events?
With such power would come great responsibility of course, but the ability to know what was going to happen around the world before it unfolded would be the stuff of dreams for forex traders.
In theory, you could set up an account with the best forex broker, reading Trends Turbo reviews and those for other firms to make the most informed decision, and then either buy or sell a particular currency pair based on the events you know are about to unfold. Profit would be guaranteed.
Meanwhile, back on planet earth, nobody has the required technology to be able to see into the future – at least, not yet anyway. But no doubt Elon Musk is working on something. Such powers would have enabled investors and speculators to foresee a few major global events occurring, and many of those have had a significant impact upon the forex market.
Here’s five of the most cataclysmic world events to have impacted forex trading:
The Nixon Shock (1971)
It seems crazy to think now that, once upon a time, the value of the US Dollar was fixed in place.
That was the Bretton Woods Agreement, which was designed to stabilize the US economy in the immediate aftermath of the two World Wars.
And it worked too, but at the culmination of the Vietnam War, the incumbent President, Richard Nixon, had his own ideas about fiscal policy.
He decided to do away with Bretton Woods, and instead decreed that the US Dollar would become a ‘free-floating’ currency – setting in motion the wheels for the modern forex trading market as we know it.
The problem is that the concept, known latterly as the ‘Nixon shock’, sent fear coursing through global economies as other currencies became free as well, and by 1973 the US economy was in stagnation – causing USD to follow suit.
The value of the Dollar dropped by more than a third in the 1970s, and while it has largely recovered since, there are still considerable bouts of volatility that cause its price to rise and fall accordingly in the free market.
The Middle East Oil Crisis (1973)
It’s not just economic events that can impact the forex market.
Some of the planet’s most prized commodities can also play their part in how international currencies perform, and when an embargo was placed on oil trading in 1973, the impact to forex pairs was catastrophic.
It all started when the nations within the OPAEC – Organization of Arab Petroleum Exporting Countries – syndicate decided to stop selling oil to those they believed were supporting Israel during the Yom Kippur War.
Key economic players such as the USA, UK, Japan and South Africa suddenly found themselves without oil supplies – the scarcity pushed the price of a barrel up by more than 300%.
The impact on global economies was significant, and in the UK, the government had to intervene to prevent the GBP from collapsing altogether – naturally, the forex market that revolves around a handful of key currencies was sent into freefall by the shockwaves felt around the world.
The Stock Market Crash (1973-74)
It never rains but it pours. To the backdrop of the Nixon Shock and the oil crisis in the Gulf, the next disaster awaiting the global economy was the crashing of the stock market, which occurred for an almost two-year period across 1973 and ‘74.
Affected by those two international events, the devaluation of the US Dollar and the economic recession in the UK caused panic to set in – severely damaging the stock markets in London and New York.
The Bank of England was forced to bail out several banks and lenders, and with the property market also in the dirt, there was a major sell-off from both institutional and personal investors – further deepening the blow to the London Stock Exchange, which saw more than 70% of its value wiped off in its darkest hour to date.
It would take more than a decade for those markets to recover, and the implication for forex was a period of sustained volatility – false dawns and bumps in the road to recovery forced currencies like USD and GBP to experience major peaks and troughs.
The Asian Financial Crisis (1997)
In 1997, many people heard the phrase ‘financial contagion’ for the first time – that explains how economic depression in one region of the world can affect all others.
The Asian financial crisis started in Thailand, where the government was forced to float the Baht to support it against the US Dollar – that led to collapse shortly after.
Several Asian economies are inextricably linked to that of Thailand, and they began pulling their money out of the country – at the same time, capital owned by overseas investors started flowing out of Asia as a whole.
Thailand already had significant debts at the time of the crisis, and those had to be largely written off – impacting the economies of Hong Kong, South Korea and Indonesia chiefly, who lost the most consequently.
The shockwaves were felt across Asia and, therefore, the rest of the world, with the forex market plunging into a period of instability and uncertainty.
While the Brexit process was finally completed in 2020, the genesis of the unrest began four years earlier with a referendum that gave the inhabitants of the UK a chance to vote on whether they felt the United Kingdom should be part of the European Union.
In the end, they narrowly voted in favor of exiting the Eurozone, and that had an impact on some forex pairs that would last for years – from trading at 1.34 prior to the referendum, the GBP/EUR pair sank to 1.13 within two years.
Other currencies were also dragged into the mire due to their trade agreements with the countries involved, and soon a European fallout had escalated to a global situation of much significance.