Robert P303 Lee

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How do fiscal policies affect forex markets?

Fiscal policy—government spending and taxation—affects currency valuation by shaping growth, inflation, and debt sustainability. Expansionary fiscal policy (stimulus) often boosts growth but risks inflation, influencing central bank policy. For example, massive U.S. fiscal stimulus during COVID initially weakened USD but later contributed to inflation-driven strength. Institutions monitor fiscal deficits and sovereign debt issuance. Retail traders can track budget announcements and bond yields as proxies. Benefits: fiscal signals help anticipate currency fundamentals. Risks: political gridlock or unsustainable deficits can trigger crises. Fiscal policy shows that governments, not just central banks, influence forex trends.