Political views of a country plays an extremely important role in the economic prospect for the country. Political factors is one of the indicators to predict exchange rate movements, but political factors are very difficult to know the timing or the exact time of occurrence and to determine the impact of exchange rate fluctuations. There are times when a political developments impact on exchange rate movements, but sometimes do not bring any impact on exchange rate movements. Example: the political turmoil that occurred in Indonesia in the post-national changes in leadership of the New Order government of 1966-1998 up to the Reform Order fluctuations cause the Rupiah against the U.S. dollar is significant. But there are times when political issues do not affect the exchange rate fluctuations, as in the case of United States President Bill Clinton and Monica Lewinsky in 1998 which does not necessarily have an impact on changes in the U.S. dollar exchange rate.
Forex Trader continuously monitors political news and events to gauge what moves, if any, a government can take steps in the economy. This includes the size of the increase in government spending for tightening restrictions on a particular sector or industry.
eg An upcoming election is always a great event for the currency market, the exchange rate will often react better to a the parties with a platform of fiscal responsibility and a government willing to pursue economic growth.
Fiscal and monetary policies of any government is an important factor in economic decision making. Decisions that affect the central bank interest rate sharply watched by the forex market for any changes in key rates or future outlook.
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