The foreign exchange market, commonly known as the forex market, is the largest and most liquid financial market in the world. It involves the buying and selling of currencies with the aim of making a profit from the fluctuations in exchange rates. The forex market is influenced by a wide range of factors, including economic data, geopolitical events, and central bank policies. In 2018, several factors dominated the forex market, and this article will discuss some of them.
1. US-China trade war
The US-China trade war was one of the most significant events that affected the forex market in 2018. The trade tension between the world’s two largest economies began in early 2018 when the US imposed tariffs on Chinese goods. China retaliated by imposing similar tariffs on US goods. The trade war escalated throughout the year, with both countries imposing additional tariffs on each other’s goods.
The trade war had a significant impact on the forex market, particularly on the Chinese yuan and the US dollar. The yuan weakened against the dollar as China’s economy was heavily reliant on exports to the US. The US dollar, on the other hand, strengthened against other currencies, as investors sought a safe haven from the uncertainty caused by the trade war.
2. Central bank policies
Central bank policies also played a significant role in shaping the forex market in 2018. The US Federal Reserve, for instance, raised interest rates four times in 2018, in response to a strengthening US economy. The higher interest rates attracted investors to the US dollar, as it offered higher returns on investment.
Similarly, the European Central Bank (ECB) announced that it would end its quantitative easing program by the end of 2018. The announcement caused the euro to weaken against the US dollar, as investors anticipated that the ECB would raise interest rates in the future.
Brexit, the UK’s decision to leave the European Union, also dominated the forex market in 2018. The uncertainty surrounding Brexit negotiations caused the British pound to weaken against other currencies, particularly the US dollar and the euro. The pound’s value fluctuated throughout the year, depending on the progress of the negotiations and the likelihood of a no-deal Brexit.
4. Emerging market currencies
Emerging market currencies also faced significant challenges in 2018. Currencies such as the Turkish lira, the Argentine peso, and the South African rand experienced significant depreciations against the US dollar. The challenges were caused by a combination of factors, including political instability, high inflation rates, and the strengthening of the US dollar.
The depreciation of emerging market currencies had a spill-over effect on other currencies, particularly those of countries that had significant trade ties with emerging economies.
In conclusion, the forex market in 2018 was dominated by several factors, including the US-China trade war, central bank policies, Brexit, and the challenges faced by emerging market currencies. These factors influenced the value of currencies and created opportunities for traders to make profits from the fluctuations in exchange rates. As we move into 2019, it’s important for traders to remain vigilant and keep an eye on these factors as they continue to shape the forex market.