Political events can cause currency volatility from "summary" of International Money and Finance by Michael Melvin
Political events have a significant impact on currency volatility. This is because political developments can create uncertainty in the market, leading to fluctuations in exchange rates. When there is uncertainty about the future political landscape of a country, investors may become more hesitant to hold onto that country's currency. As a result, the currency may depreciate in value as investors seek safer assets. One example of how political events can cause currency volatility is through elections. Elections are often seen as a source of uncertainty, as the outcome may lead to changes in economic policy or political instability. If investors believe that a particular candidate or party will enact policies that are detrimental to the economy, they may sell off that country's currency. This can lead to a depreciation of the currency as demand for it decreases. Another example of how political events can cause currency volatility is through geopolitical tensions. When there is political unrest or conflict between countries, investors may view the affected currencies as riskier investments. This can lead to a depreciation of the currencies of the countries involved in the conflict. For example, if two countries are engaged in a trade war, their currencies may depreciate as investors worry about the impact of the conflict on their economies.- Political events can have a significant impact on currency volatility. The uncertainty created by political developments can lead to fluctuations in exchange rates as investors adjust their portfolios in response to changing risks. It is important for market participants to stay informed about political events and their potential implications for currency markets in order to make informed decisions.
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