How Does a Fiscal Policy Move Currency? Forex Trader Need To Know!

Many traders wonder, what is a Fiscal Policy? What is the effect of currency fluctuations? Fiscal policy is one of the economic policies that is the government's initiative to control the rate of expenditure and taxes that affect the economy. When it is linked to the economy, of course, it will have an impact on the currency.

This policy is similar to monetary policy which aims to achieve various economic goals. Fiscal policy will affect the rise and fall of a country's currency.

This policy was first known in 1930 and was supported by a British economist, John Maynard Keynes. He also argued that if a country is facing a recession, dumping money into the hands of consumers can lead to economic growth.

The question is, how does fiscal policy move the value of a currency?

The effect of fiscal policy on the currency depends on the economic situation. Every country has an ever-changing economic status, so it is very difficult to accurately determine the impact of such policies on exchange rates.


For example, the government has a budget deficit due to expansionary policies. Therefore, the government needs to work with the national bank to print new money to address the issue. (or also known as Quantitive Easing)

Newly printed money can be used by governments to develop their economy. If there is a large-scale printing of money, it will increase the supply of currency in a country as well as lower the value of the currency and cause an increase in inflation.

But if the government raises taxes in a country, the supply of currency will decrease (people have to pay taxes and less money on hand) and will cause the effect of the increase to the value of the currency.

Pay attention to the speeches of the central bank and the head of state to understand more if there is an announcement about fiscal policy. Because if there is an announcement of "money printing" by the government of a country, with your forex trading skills, maybe you also have the opportunity to print money together into your pocket.