The news events that influence the forex market in London are significant announcements from the UK Government, the Bank of England (BoE) and other companies working alongside them.
Exchange rates
News can affect exchange rates between countries’ currencies; for example, if a company had solid financial results, they could increase revenue, leading to demand for their currency.
If this is not outweighed by supply, then there is an increased value on that currency which means that more of it has to be purchased to buy just one unit of another currency.
A simple way to view the critical news events affecting London’s forex market is using two factors: how positive or negative the news is and how close it is announced to market hours (14:00 – 22:00 GMT).
Market hours
The more positive the news, the further away from market hours and vice versa for negative news; this means that essential events released at 14:00 GMT on a Wednesday will influence the exchange rates of currencies coming into London’s forex market at 20:30 GMT that evening.
If they are considered excellent news, foreign investors may sell their currency to buy Pound Sterling (GBP) to spend them on goods or services within the UK economy.
It would cause GBP appreciation on international markets as there were more units on offer than demand, leading to a decrease in the value of another currency against the pound sterling.
Conversely, if it was bad news, such as a fall in GDP, then foreign investors may sell their GBP to buy another currency which would cause a depreciation of GBP on international markets.
Examples of Important news events that influence the forex market in London:
Interest rates
A major announcement from the Bank of England (BoE) is the monthly meeting to set interest rates for UK banks.
Interest rates are low when demand for borrowing money is low, pushing down exchange rates as less foreign investment is needed.
Conversely, when there is an inflation risk and expected high growth, this often influences upwardly mobile interest rates, making investing in another country attractive, leading to exchange rate appreciation.
It can be considered positive news because it will lead to investors buying more GBP; however, if the forecasted inflation rate increases too much, investors may see the Pound as overvalued and increase their GBP selling which could lead to appreciation on foreign exchange markets.
Budget report
A major announcement from the UK Government is a budget report which outlines predicted growth rates and the expected changes in the economy for that year.
It also sets out tax changes, spending plans, debt repayments and any subsidies or benefits that are about to expire or change.
The outcome of this can affect market activity because it can show whether there are likely to be increased levels of spending, saving or borrowing leading to aggregate demand for either another currency or Pound Sterling.
This news can often significantly impact exchange rates, e.g. George Osborne’s emergency budget following Brexit sent GBP down 3% against Euro(EUR) and 2% against the US Dollar (USD).
Essential indicator
A major announcement from another company working alongside the UK Government is an essential indicator of the economic health of a particular industry, like oil.
Suppose there was an increase in demand for oil leading to unrest in the Middle East.
In that case, stock markets may become concerned about the adverse effects on other companies’ revenue, leading to increased foreign investment in Pound Sterling.
International trade
An announcement from a geopolitical organisation such as NATO can affect the forex market by influencing international trade and spending.
If NATO announced more sanctions against Russia, then it is likely that foreign investors would sell their Russian Ruble (RUB) or buy more Pound Sterling as they will become increasingly concerned about other effects on the country’s economy.
This news will be considered positive for GBP because increased demand will lead to appreciation on foreign exchanges.
However, this could also cause exchange rates to fall if foreign investment saw Ruble as undervalued and bought them instead of Pound.
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