Any war is usually bad as destruction follows. Trade wars and Forex are an economic sort of war where one country seeks to make itself competitive, by making a rival’s products less attractive. Usually the first sign of such a war is a devaluation of a currency against others.
The Chinese Renminbi (CNY) has historically been considered by some western commentators to be trading below its value. The suggestion being that Beijing has deliberately done this to keep domestic economic growth around the 6-7% which is considered their yearly target. As a result the Renminbi is considered a Fixed exchange rate currency as opposed to the floating exchange rate currencies in the West. This is because it is kept ‘under control’ by the the people’s bank of china, so as to not hurt Chinese exporters. Such central bank monetary policies are not abnormal for countries where politics and economics are essentially as one with little independence of one from the other.
Political discord can also lead to trade wars and Forex. The ongoing Brexit divorce process is about agreeing to terms on which to trade. Various trade terms are being discussed. At the time of writing the inability of the current political party in power to agree on what trade terms are acceptable are leading to a war within a war! Post-Brexit markets will be different due to this divorce. This will have an effect on the value of Pound Sterling and will lead to some new trading ranges being established and discovered.
A trade war usually ends up with both countries involved losing out. This is another reason why currency trading is not for the faint hearted. Sometimes one currency will actually strengthen when a trade war occurs, as the market agrees with that countries stance. Trade wars are a form of geopolitical event. In the West we are used to governments following broadly open economic policies which make sense to any financially literate follower. Yet as a retail Forex trader you should always realise that what is the norm may not be reflected in the market. Keeping an open mind is important for any aspiring Forex trader which allow you to sidestep the landlines and become a profitable trader!