Global forex market dynamics: Red Sea crisis, holidays, and economic shifts

Global forex market dynamics: Red Sea crisis, holidays, and economic shifts

The global forex market is driven by two simple components: demand and supply. Except, these fundamental principles spread across not just goods and services but also the prevailing conditions in a country. One of the crucial aspects is the holiday season, a time when the global forex market takes a break from constant exchanges.

External factors play an important role in shaping forex trends. For instance, the Russia-Ukraine war pumped up fuel prices. Houthis attacking random ships in the Red Sea is causing trouble for major economies.

The Red Sea Crisis and Forex

The Red Sea forms an imperative part of trade. However, Houthis attacking ships at random, saying that they intended to affect Jewish ships, had put major economies on the edge. Many companies have been forced to either shut down the movement or take a longer route via Cape Good Hope.

It sounds assuring until economies realize that the Red Sea crisis has ended up making their journey longer and more expensive. For reference, a trip for China-Europe trade takes almost 37 days. It would now take 49 days. Since cost is counted on distance traveled, the overall numbers, including for commodities and oil, shoot up considerably.

Holiday Season and Forex Trends

As good as it reflects on the calendar, the same does not hold when it comes to the forex market. A holiday season marks a constant stoppage of forex trading. Thereby, it affects the pace at which forex investment is done. What largely affects the segment is a lack of liquidity and higher volatility.

The forex exchange market takes a break on December 25, December 26, and finally on New Year. What comes in between is considered an ideal time to make corrections to theory. For instance, the US Dollar Index has hit ~101.40; however, the Euro is gaining traction. Stepping away from the market could bring to attention more such potential updates for traders looking at their portfolios for a higher return.

Gold and Forex Relationship

It should come as no surprise that the global gold market looks at pricing in US dollars. A loss in the FX market is ultimately a loss in the global gold market. The asset is priced at $2,032.30 at the time of drafting this piece. Local currencies incurring higher exchange expenditure will have to shed more tears.

January is likely to mark a comeback for Gold. That is the time when markets open up during the holiday season. Forex economic shifts reflect better, with many investors taking home some profit. Plus, gold serves as a store of value in the long run.

Currency Changes and their Forex Impact

Currency changes pertain to changes in the monetary policies of the Central Bank. The US Federal Reserve, for instance, is teased to start cutting rates in the middle of the year. It is based on the assumption that inflation would have either turned below 2% or at least come closer to that milestone.

A rate cut will have a ripple effect since many countries are holding their implementations back. The Bank of Japan, similarly, is expected to stop running the easy policy practice. The yen has increased in recent times, and changes in either currency will affect regions heavily dealing in USD and/or JPY.

Commodities and Forex Market Dynamics

Prices of a commodity, or commodities for that matter, leave a mark on forex currency changes. Given the period of time when Russia was subject to sanctions as a result of its conflict with Ukraine, this is understandable. Countries were restricted from exchanging the USD for the purchase, driving the price up and putting pressure on those who wanted to make the purchase.

A low or restricted utility of the USD put it in the bag-pack, paving the way for other currencies to be stored in bilateral trade.


All global events end up joining the dots. The Red Sea Crisis will drive transportation costs, with the burden then being transferred to regions and their residents. Similarly, the holiday season hits the availability of liquidity in the forex market, forcing investors and traders to take a short break amid muted volumes. It is only safe to assume that January will bring tons of updates.

Published at Wed, 27 Dec 2023 15:30:39 +0100

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