Can Wrong Keywords in Domain Name Affect Google Search Rank?

Update: This Article lost its relevance after Google's EMD, Panda and Penguin updates but still recommendable to read. This article deals with two questions most webmasters ask. Both of them are ;

Can a wrong keyword in domain name affect the ranking?
Why does my site lose ranking for certain search phrases?

After the Exact Match Domain (EMD) update, Google reduced the impact of keywords in domain name. However, many SEO professionals feel following disadvantages are possible with a domain with wrong keywords.

Gives false information to Search Engine Spiders

While reading the domain name of your website, Search Engine spiders may get a false impression about your business and there is a chance of ranking well for the words which you never intended to rank well.
Inbound links without anchor text can harm your ranking in actual keywords

Do you know why inbound links without anchor text harm your ranks in actual keywords? It is because as long as there is no anchor text (text on the link), spiders may think this link as a vote for your website in the words mentioned URL. So that link actually increases your website ranking for keywords in your domain name instead of your actual keywords. However, after Penguin update, most webmasters don't prefer links with money phrases.
They Can Confuse Users

While discussing whether wrong keywords in domain name actually hurt our website rank or not, we need to think in users view also. Most of the users will get a wrong impression about your business while reading the URL with wrong words. It can hurt the flow of targeted visits. For example, if you are a tour coordinator in Europe but the URL having keywords related to website development services in Miami, even though you got a good position in Google Search Result, users will be confused. Some users just read the title tag and the description in Search Result but many users read the URL too.

Now let us come to the second question. It is not rare to see losing positions in Google results for queries where you were top 1. Most of the time this situation happens when your website is not too old and you are in a stage to develop the site with more new articles. Another possible reason is the latest Google algorithm updates. One of my friends faced this issue. His blog was getting a good amount of traffic from certain keywords but lost it suddenly. While analyzing the issue, he found that he lost his high ranking for that keywords in Google. He is lucky that some other keywords start getting more traffic. So his website didn't show many drops in traffic. All the reasons below are based on simple logic on how do Google and other major Search Engines work.

Possible Google dance

Maybe it is the Google dance which caused a sudden drop in your website ranking for certain keywords. If it is the real reason, you may recover your keyword rank within some weeks.
Possible Search Algorithm updates

Search Engines are always in their way to provide better results to their users. So they update their algorithm every time and some of them may badly affect ranking.
The competitor is doing better than you

If the competitor succeeds in gaining more trust in Google for those keywords, they will appear above you. It clearly shows the basic rule, survival of fittest.
Lost backlinks

If your site lost some important backlinks, it will reflect in ranking.
Google Devalued spammy links

It is possible big G may devalue some of the backlinks pointing to your site. There are so many reasons like paid links, blog network, spam links etc can attract Google devaluation. If any of the strong links (those were giving a good portion of power to your site) pointing are devalued, you will definitely lose the current position in results.

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