Nation’s economy is very sensitive towards political events as both national and international political events can make a great influence on currency markets.
During political instability and political turmoil currencies are expected to undergo negative changes. Whereas if a new economically friendly government is instilled this may lead favorable economic conditions which in its turn affect currency values.
The Presidential elections in Iran showed that elections being a common event in nearly all nations can play a great role in the value of a country’s currency. Elections are generally referred as cases of political uncertainty and instability which typically causes much volatility in the value of a country’s currency.
Mostly the situation of pre-election polls gives a sense of what kind of changes to expect. Those individuals and political parties who are largely engaged in promoting economic growth are inclined to increase currency’s relative value.
An unexpected election is also considered a serious reason for currency changes. Regardless of the reason whether it’s a result of corruption scandals, non confidence vote or other situation, unexpected elections can cause a chaos in currency. In some cases when because of certain upheaval citizens start protesting or striking political instability and turmoil increase.
Change in government
The replacement of an autocratic government with a more democratic one causes the same political instability. Based on the data of Federal Reserve Bank of New York it can be stated that due to the change taking place in government there is always expected a change in the ideology of the country’s citizens, which brings a different approach to fiscal or monetary policy. Both those factors, particularly the former, are considered great influencers of currency’s value. In major cases, however, the political instability dominates expected positive outcomes from the new government and this brings unavoidable consequences to currencies.
From the above mentioned points it turned out that each factor itself (elections, unexpected elections and changes in government) can have a mainly detrimental effect on the economic market and the local currency.