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The foreign exchange (forex) market is one of the most highly liquid and highly volatile markets.
Within the space of one day, performance on forex can vary drastically, with rapid changes in the condition of the market, and fluctuations in the price values of various assets.
There are multiple things that affect the forex market, but one of the most significant impacts comes from the presence of external events, and the influence they have on currency values.
Ranging from the economic state of a country, to its political affiliations with the world, there are endless events that can change the performance of forex.
To be more successful when trading forex, it’s essential that you keep a close eye on what events are currently affecting the market, and how exactly they are doing it.
In light of this, this article will explore the main things affecting the forex market in June 2022, to give you a clearer picture of how your trades need to be adapted.
The cost-of-living crisis
One of the major factors affecting the forex market in June, is the cost-of-living crisis that continues to trouble the UK.
As prices rise rapidly across every consumer industry, the cost of essentials becomes harder to manage.
If every day or week you walk into a supermarket with £10, the amount you could buy will start decreasing each time you visit.
In April, the average energy bills for families on a standard variable tariff increased by 54%.
This is just one of the examples of how the crisis is affecting daily living.
Naturally, a crisis such as this has had a huge impact on forex, as the value of the Great British Pound (GBP) has begun to fall.
On March 23rd, the GPB against the US Dollar (USD) sat at $1.32. the value has since declined rapidly to land on $1.21 on June 13th.
As the UK crisis continues, it’s highly suggested that you watch for continued declines and changes in the price of the GPB.
US Inflation rates
Like many other countries at present time, the US has seen a steep climb in inflation over recent months.
In the 12 months through to May, the Consumer Price Index (CPI) – an accurate measure of inflation – saw an 8.6% increase.
The rate of inflation is at a 40-year high across the US, and as a result, measures are being put in place to counter this drastic rise. And this is where forex will be heavily impacted.
The Federal Reserve issued an interest rate hike of 50bp in May, to combat the rising inflation. Many predict this is part of an ongoing plan to continue interest hikes, and the rates are predicted to hike again throughout June and July.
As a result, many traders have opted to invest in the Dollar, as increasing interest usually strengthens a currency.
This meant that from June 9th – when the predictions were widely announced – to June 13th, the value of the USD against the Euro (EUR), increased from €0.93 to €0.95.
Be mindful that with more interest hikes being alluded to, investment in the USD may continue to increase, thus strengthening its value.
Europe’s energy deficiency
A factor that has been a continuous influence on the forex market for the past several months, is Russia’s invasion of Ukraine, and everything that has resulted from it.
Among many other things, the invasion has caused a severe increase in gas prices, due to the cutting off of Europe’s main natural gas supply.
Russia’s exports of natural gas were sanctioned by Europe, and with the main supply now cut off, the demand for gas increased significantly.
Since this happened in February, the prices of gas across Europe have steeply climbed, and in turn, the value of the EUR has suffered because of it.
Also, more recently, the prices hiked massively due to a fire at a large export terminal in the US on June 9th, and with supply already scarce, this had a much stronger impact on prices – Dutch front-month gas, the European benchmark, rose as much as 16%.
This was reflected in the performance of the EUR/USD, as it declined very quickly from $1.07 on June 9th, to $1.04 on June 13th.
With demand remaining high and supply low for gas across Europe, you can expect the rising prices and falling currency value to remain a consistent part of your forex trading, for the time being.
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