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Political Events Can Affect the Currency Exchange Rate

Political events are one of the biggest factors that affects currency exchange rates, and they can have a major impact on the particular value of a currency in a matter of minutes depending on what type of event occurs. As we saw with the recent Brexit vote in 2016, the value of the British pound dropped quite dramatically in a period of days, and then it quickly recovered. This type of currency shift is not the norm, but it’s always possible whenever a majorly impactful event occurs. No one can really predict when these fluctuations will happen, however when they do happen you may be able to save money on currency exchange.

Elections can affect currency exchange rates

One of the most common major political changes that can affect the exchange rate for a particular currency is an election. If the candidate is perceived by local business interests as possibly being good for business in the country, the currency exchange rate may jump up. This type of candidate is considered a “pro economy” candidate. Similarly the value of the stock market may also increase when a pro economy candidate is elected. On the opposite end, a candidate that is perceived as potentially increasing business regulation and restriction or one who would otherwise affect the business world with certain policies may result in a currency decline or a stock market decline.

Unexpected elections and political instability affect exchange rates

Another more uncommon political event that can affect the currency exchange rate is an unexpected election. This type of election can occur as the result of a scandal that resulted in the removal of a leader, a leader resigning, a corruption investigation or other types of unplanned election situations. This political instability can cause all kinds of havoc in the business world for a particular country. The political instability may have some potential long term benefits for a country, but in the short term many business people and traders will perceive the instability as being potentially harmful for business. As a result the currency exchange rate may have a rapid drop off, which can occur in a very short period of time.

Currency exchange rates usually rebound if they decline

When currency exchange rates do decline as the result of a political issue, in many cases they rebound once the political problem stabilizes, as it does in many cases. We saw this with the Brexit vote, as the value of the British pound largely recovered after it dropped following the vote. However, in other situations it can take a longer period of time for the value of a currency to recover. In any case, travelers and others can actually benefit from a decline in a currency exchange rate. They are often able to purchase larger amounts of the currency at the same price as before, making it cheaper for them to travel to the country in which the political event occurred. It can even be good for a country’s tourism to have a decline in their exchange rate, but there are other negative consequences as well.


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