What moves currencies

Military conflicts

What would happen to the Russian ruble if Russia suddenly sent its army into Ukraine? The value of Russian ruble would fall against all other major currencies. This is logical but the little trick here is that you don’t even need an army to cross a foreign border or shoot bullets to cause such effect.

Just the threat of a potential military conflict tends to influence the currencies of the involved nations.

This happens because investors hate instability, so they will pull out their resources from these markets as quickly as they can. By withdrawing their assets and converting the rubles to other currencies, they are weakening the ruble and strengthening the other currency.

The most popular currencies Russian investors were hurrying to buy as the Russa/Ukraine conflict began were the USD and CHF as these are considered to be safe currencies.

The smart investors who caught the start of this military conflict went short on RUB/USD and made a 30% profit in record time.

9-Quantitative Easing

Quantitative Easing (QE) might sound like rocket science, but in essence, it works similarly to an interest rate cut used by central banks to revitalize the economy during and after serious recessions.

When the crisis of 2008 – 2009 started, many central banks slashed their overnight interest rates to help the economies recover. Many of them had to cut the rates close and below to zero, but even that failed to revive the economic activity. So central banks started to experiment with different mechanisms to pump money into the markets. One of the tools was quantitative easing.

How QE is suppose to work?

1-To boost a sluggish economy, Central bank prints money…
2-To buy bonds from smaller banks…
3-Who use this money to make loans to businesses & individuals…
4-Resulting in business growth, job creation, and increased spending…
5-Thus revitalizing the sluggish economy.

When a central bank performs QE, it is essentially printing money (nowadays, it is mostly digital) to purchase huge quantities of bonds from smaller banks. As a result, the banks have piles of extra money; hence, “quantitative” easing. Banks obviously use this money to make new loans and buy stocks, which is expected to result in economic recovery.

If QE is convincing and people feel that the central bank is serious about reversing the high deflation, then it can kick-start the economy by simply raising confidence that recovery is coming.

How much money is involved in a QE?

On January 21, 2015, the European Central Bank announced a QE program during which it would purchase 50 billion euros of bonds per month, for a total of 1.1 trillion euros!

This announcement sent the euro to an 11-year low against the USD. Many forex traders who shorted EUR/USD before the announcement made nice profits.

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