5 Key Things to Look Out for When Trading Forex in 2018
5 Key Things to Look Out for When Trading Forex in 2018
Forex traders need to constantly focus on what’s happening in financial markets, as well as keep up with current events that may affect the price of currencies. So, because traders need to keep abreast with so much information at once, here are 5 things that they need to watch out for when trading Forex in 2018.
President Donald Trump’s Words
Donald Trump is one of the most controversial presidents in American history and has become infamous, both politically and economically, for his “America First” policy. An article by Bloomberg published in the New Year, stated that Trump is to blame for the current weak dollar. Last year the greenback lost 10% against the Euro, and 5.5% against the Chinese Renminbi due to his economic policies. While Trump has covered his bases by proclaiming that a weak dollar is good for business, his behaviour, rather than economic policy, “is undermining it”.
Forex traders are advised to watch out for the president’s words when trading Forex because they do affect currencies, and can cause unpredictability in the market. The dollar usually has an inversely proportional relationship with other currencies. When the dollar declines, the GBP and EUR go up and vice versa.
Brexit
Brexit will be a constant cause of price swings for the pound until a final vote can be reached. The volatility of the currency will depend on whether or not the UK will opt for a soft or hard Brexit. A soft Brexit will mean that the UK will likely continue to trade with the EU under similar pre-Brexit terms. Most investors tend to side with this decision. What investors fear, however, is a hard Brexit, which means the complete severance of the UK from the Single Market, the introduction of tariffs on goods, and withdrawal of passport rights for financial institutions. The result of this is that the pound will have less purchasing power when importing from foreign merchants.
Interest Rate Hikes
Investors put their money in currencies with high interest rates, as higher interest rates mean bigger profits from their investments. The Bank of England (BOE) last year increased interest rates for the first time in more than a year. If the BOE increases its rates again in 2018, more investors will invest in the pound. Forex’s foundations are based on “buying low and selling high”, which is why investors are currently buying large amounts of sterling. In the future they can sell the currency if interest rates continue to stay high.
Inflation Rates
Inflation changes a lot of currency exchange rates. A country with little inflation will see an appreciation of its currency, and the prices of goods will rise at a slower rate. Inflation in the UK is predicted to increase in the coming years, and this is not good for the pound. A country with a higher inflation rate normally sees a quicker depreciation of its currency. The UK’s inflation rate is at a near six-year high, and the trend may continue in 2018.
Speculation
If the pound is expected to rise, investors will be looking at purchasing the currency in order to make a profit in the future. However, speculation predicts that the value of the pound won’t reach previous heights, as Brexit will mean markets will turn bearish on the country. For example, a month after the referendum vote, the consensus forecast for GDP plummeted by over 75%, and the forecast still hasn’t recovered to this day. Economists have lowered their growth forecast for 2018 from 2.2% to 1.3%.
Forex is a decentralised global market where all the world’s major currencies are being traded. FXCM suggests that Forex has an average trading volume that exceeds £3.6 trillion, making it the most liquid market in the world. With a huge amount of money getting traded on a daily basis, the price of currencies shift when major political and economic events happen. To be a successful trader, investors have to be aware of key events that are predicted to happen within the year.
