Have you ever thought about why your money changes hands so quickly? Worldwide events like elections and natural disasters mainly cause these changes. Find out how these global events currency impact change the value of money and what that means for your wallet. Read our in-depth study to find out what’s going on and how you can stay ahead in a constantly shifting market.
Categories of Global Events Currency Impact
Global events that impact currency values can be categorized into economic, political, natural, and geopolitical categories. Each category affects currencies in unique ways.
- Economic Events
- Political Events
- Geopolitical Events
- Natural Disasters
Economic Events
Numerous factors influence the global economy, often referred to as economic events. These include decisions made by central banks, the negotiation of trade agreements, and the release of economic data.
Central Bank Decisions
Central banks like the Federal Reserve in the US, the European Central Bank, and the Bank of Japan do this. The value of a currency can change quickly and for a long time when interest rates, quantitative easing, and other changes are made to monetary policy.
- When the central bank of a country raises rates of interest, the currency almost always gains value. This happens because foreign investors buy cash when interest rates are high, making it more valuable.
- Another type of easing is quantitative easing. This is when a central bank makes more money available, which can lower the value of the currency.
Political Events
Sometimes, elections, government policies, and political unrest can cause financial markets to change significantly.
Elections and Political Stability
Many people might not trust the government after an election, especially if significant changes are possible to how things are run. Investors believe a country needs to have a stable government, so any sign of instability can cause the currency to deteriorate in value.
- The British pound’s value dropped significantly after the 2016 Brexit vote because it caused so much doubt. Investors were worried about what would happen to the economy if the UK left the EU.
Government Policies
Changes to regulations and rules set by the government can also change the value of a currency. Money tends to gain value when measures are seen as good for economic growth, but it can also lose value when people think that certain laws are bad for the economy.
Geopolitical Events
The worth of a currency can change a lot because of things that happen in geopolitics, like wars, conflicts, and international bans.
Wars and Conflicts
People want to get away to safety when wars and other fights are going on because they fear the worst. When the world is tense, buyers often put their money in “haven” currencies like the US dollar, the Swiss franc, or the Japanese yen.
- For example, all currencies around the world lost value when Russia attacked Ukraine in 2022. The Russian ruble fell sharply in value because of economic bans and investors’ loss of faith. On the other hand, the US dollar and other safe-haven currencies went up in value.
International Sanctions
The currency of the country being targeted may drop sharply because of the damage that sanctions can do to its business. Many penalties make it tougher for a country to trade with other nations, which means that fewer people want to buy its currency.
Natural Disasters
When natural disasters like storms, earthquakes, and tsunamis happen, they can change the value of a currency, but generally only in a small area.
Immediate Economic Impact
Natural disasters can immediately harm the economy by stopping trade, damaging infrastructure, and making it very expensive to fix up and rebuild. This could make the dollar of the country that was hurt worth less.
- People in Japan lost a lot of money when the earthquake and tsunami in 2011 occurred. This temporarily reduced the yen’s value. But the drop didn’t last long because of Japan’s strong economy and the yen’s safety.
Long-Term Recovery
Sometimes, rebuilding and recovering over a long period can lead to economic growth. This could cause the currency of the affected country to rise in value over time. This relies on how well the business is doing and the efforts to get it back on track.
Impact on Consumers
The value of currencies changes because of events in other parts of the world. These changes have direct and secondary effects on customers.
Purchasing Power
When a coin’s value changes, people can buy less or more. It’s easier to buy goods from other countries when the currency is strong, which means that people in the country can get those goods for less money. However, when the currency is weak, it’s harder to buy things, which makes them cost more.
- If the dollar strengthens against the euro, people in the US will pay less for things from Europe. But those things will cost more if the dollar falls.
Inflation
If the value of a currency goes down, it can lead to inflation because goods and services from other countries cost more. When prices go up, people may not be able to buy as much, which can raise the cost of living.
Inflation has been very high in Argentina because the peso’s value has dropped sharply over the past few years. This has a significant impact on the cost of living for people there.
Employment and Wages
The value of the dollar can also affect work and pay. One way a weaker currency can help exports is by making them cheaper on the world market. Businesses that depend on exports can hire more people because of this. On the other hand, a stronger currency can make exports less competitive, which could lead to job loss.
Things that happen in the world, whether political, economic, environmental, or military, significantly impact the values of different currencies. This, in turn, has many effects on customers, from their jobs and pay to their ability to buy things and the inflation rate. People who make policy, companies, and customers need to know how Global events currency impact to understand how the world economy works. By staying informed of and getting used to these changes, stakeholders can lessen the destructive effects of currency changes and make the most of the good ones.
