Relationship between interest rates and forex :


Amateurs of fundamental analysis know this, interest rates have a significant impact on foreign exchange market currency. They stimulate investment flows from one currency to another and to the extent that currencies represent the economy of a country, differences in interest rates in each country Different currencies.

It is the central banks that set the interest rates. In order to ensure price stability and encourage trade, from time to time, adjustments are made, both upwards and downwards.

When a bank raises its interest rates, returns on investments in the country's currency improve, attracting new investors. The influx of new investors leads to an increase in demand for the currency in question, which ultimately increases its value.

Conversely, when a central bank decides to lower its interest rates, returns on assets in its currency become less attractive. Investors are less likely to buy the currency. It then tends to lose its value.

You will understand that, when setting interest rates, central banks set the tone of the terms of remuneration and borrowing of its currency. They are not satisfied with this, since they also sometimes conduct "open market" operations which change the conditions of intervention on their currency and influence the behavior of traders in the foreign exchange market.

Central bank communications linked to possible changes in interest rates are closely monitored by forex traders because they can cause significant volatility on currency pairs and greatly alter their exchange rate and this is There is a great opportunity to stock up on pips!

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