Elections, irrespective of whether a parliamentary, presidential or referenda based, lead to a great deal of market uncertainty. During the entire election period, issues like national security, international trade, as well as government spending becomes a matter of huge debate and discussion. In this article, learn about the impact UK and US elections have on the foreign exchange market and what traders should be aware about the markets during the election cycle.
The Impact of US and UK Elections on the Market
As far as the U.S. is concerned, it is the largest economy of the world, with a GDP amounting to almost US 18 trillion dollars on annual basis, or almost 16percent of the world GDP. Given the country’s military and economic significance, the presidential election in the U.S., which takes place after every 4 years is viewed with a lot of interest by traders in all parts of the globe. The final result of the elections in the United States has a direct impact on a number of global institutions, which in turn affects the world economic and political scenario as well as landscape.
Similarly, the outcome of the United Kingdom general elections impacts trading as well as the stock markets around the globe. For instance, currently many traders assume that Brexit has impacted the United Kingdom economy badly. The market feels that this has made it difficult as well as expensive for UK companies to do business with their closest and largest trading partner-the European Union.
Also, UK is one of the long standing allies of the United States and hence the country has a deeper interest in the outcome of the U.S. elections. Any changes within the United States’ government impact their trade & commerce activities, future monetary policies, economic development as well as military alliance.
It must also be noted that the value of GBP in relation to USD is often used for measuring the pound’s value. Depending upon which party assumes power in the U.S. the GBP either appreciates or depreciates in value against the USD.
What Traders Need to Know About the Elections in Main Markets?
Traders around the globe need to understand that elections in the main currency markets such as the U.S. and the UK can result in increased volatility as well as price fluctuations in the top currencies of the world. There is an increased variation in the rate of exchange that offers tremendous opportunities as well as risks for trading.
In general, traders must keep a track of numerous events at the time of election. These include any announcements made by the institutional traders pertaining to election results that are pending. They must also be aware of the comments made by the members of the United States Federal Reserve and other foreign leaders since that can result in increased volatility for short-term period. In addition to this, traders must monitor the exit survey polls and data as a strong exit poll data may cause chaos in the market.
Finally, it is important for traders to be aware of the time of closing of the voting polls as it impacts the opening market positions. Also, poll closings are sensitive to time zones and hence traders must respect keep an eye on the precise schedules.