The foreign exchange market is unique due to the volume of trading that takes place on a daily basis, the large areas that it covers during its extended trading hours, the range of traders from different backgrounds, the number of traders, the liquidity and the number of factors that could affect the exchange rate value.
How Does Forex News Affect Currency Values
It is not simply forex news that has an effect on a country’s currency value. Socio-economic and political factors play a massive role in the movements that are experienced in currency values. It is for these reasons that insider trading is not really possible in this market which is a massive advantage to all the traders involved in the market. A trader needs to keep abreast of economic news events, form an opinion and do analysis based on that news, and commence trading. There are many forex traders who trade on forex news only and this can have a huge impact on their trades. Over the years, news events have changed the course forex trading.
During the summer 1992, speculation was rife that the UK was to be removed from the European Monetary Union. The speculation impacted massively on the British pound. A very astute trader named George Soros, who was one of the founder members of a large hedge fund named The Quantum, saw an opportunity to take advantage of this news event. He entered a short trade in the forex market to the value of ten billion. This massive trade caused the value of the pound to take a sudden turn. The Bank of England was forced to intervene to try and stabilise their currency, but to no avail. The pound declined sharply on September 16th and to this day it is known as Black Wednesday. Britain was forced into withdrawing from the European Monetary Union and George Soros walked away with a massive profit of one billion dollars.
In another event, Stanley Druckenmiller decided to take advantage of the future reunification of Germany. He purchases two billion German marks because he speculated that the breaking down of the Berlin Wall would impact on the country’s currency. He was right because the deutschemark soared in value over a period of time. It is not clear how much money he made on his deal, but speculators have stated that his net return on that deal was at least 60%.
The US stock market crashed during 1987 and this caused traders to make a decision to buy any currency that was showing an improvement against the dollar. The currency that became very popular at the time was the New Zealand dollar. Andy Krieger made a decision that the kiwi would not be able to maintain that position indefinitely and he went short on 200 million New Zealand dollars. The currency folded under the immense pressure and Krieger walked away with a huge amount of profit on his trade.
The factor that links all these huge gains that have been made in this financial market is forex news. Each trader made a decision based on the news and the economic data that was available. Professionals state that it would not be possible to replicate any of these huge deals nowadays since the market has become more regulated. It is possible however to replicate the basis on which the trades were carried out.