World leaders have a tendency (especially in recent history) to say things that can have real impacts on the currency markets and in particular FOREX rates. This can include things as inane as the UK Prime Minister stuttering at a conference causing a drop in the value of GDP against all other major currency pairs to more extreme announcements, such as the president of the United States threatening tariffs on $500 billion of imports from China, causing a shift in the value of a dollar and many other currencies.
Non-business statements that effect the markets
Curiously, although the majority of statements and actions by world leaders that cause large reactions in the currency markets are business related, there is also a not-insignificant and growing amount of statements that are not related to business but have real impact on the currency markets (such as the statements below).
Fire and fury
“North Korea best not make any more threats to the United States. They will be met with fire and the fury like the world has never seen.” This statement President Trump made to reporters in 2017 didn’t only shake the world but the value of the dollar (causing it to rise against AUS and CAD but dropping short term against JPY, EUR and GBP).
When allegations were made public in 2017 of an alleged affair between President Trump and a former porn star, the dollar tumbled against all other major currency pairs (apart from JPY).
Why do these statements effect the markets?
Whether it is a threat of war or a question of leadership/integrity, both the examples above are classic situations where at their core there is a business impact, long term or short term. In conclusion, if the statement or action is significant it doesn’t have to be immediately or clearly business related to have a real impact on the value of a currency or market.
Not all statements or actions matter
Conversely, the currency markets do not react significantly to every statement or action a politician or senior world leader makes (in some cases there can also be a delayed reaction).
Take for example, the recent expelling of 23 Russian diplomats by the UK Prime Minister. When this was announced there was huge media coverage and political reaction but GDP value remained relatively stable.
Keeping an eye on world leaders
When it comes to the currency markets it is worth keeping an eye on what the world leaders are saying and doing and seeing where you can correlate their significant movements with movements in the currency markets to understand their impact and predict future impacts.
Remember it doesn’t have to have an immediate or clear business impact to have an impact on the market. If you want to do some research, take a look at further examples of where world leaders have effected and not affected the world’s currency markets below.
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