Interest Rate: A Simple Understanding of Forex Interest Rates

Interest Rate: A Simple Understanding of Forex Interest Rates

Understand the influence of forex interest rates

Understanding the influence of interest rates on currency exchange rates is indeed a bit complicated for those who do not know the basic points. Simply like this, the value of an interest rate or Forex Interest Rate makes the money turnover in the forex world. In other words, the forex market moves because of the market reaction to the value of forex interest rates on each currency traded.

forex interest rates

Interest rates on currencies are one of the biggest factors in determining the benchmark price. Find out and find out about how the central bank sets monetary policy, such as raising or lowering interest rates. This is a very important thing to know, if you are a trader who wants to anticipate price movements.

One reason for the central bank’s decision to change the value of forex interest rates is inflation.

Risk

However, behind that all of course there are risks that are ready to be faced. Too high inflation can hurt the economy and make the market look sluggish and lack purchasing power in the community. So that in the end the wheel of the economy that should be smooth will be a little hampered. That is why the central bank always safeguards and monitors the inflation rate associated with economic indicators.

In an effort to keep inflation at a level that is considered safe, the central bank may plan to raise its benchmark interest rate. The goal is economic growth to stabilize and the inflation rate will decline or slow down. This happened due to several factors, one of which was because consumer and business interests in the lending / credit sector declined. Market consumers prefer to save their money rather than choosing to borrow in hopes of getting more interest.

On the other hand, when forex interest rates decline, consumers will be more likely to borrow / credit. Easier loan requirements, increasing retail and their capital.

Relationship between Forex Interest Rate and Activities in the Forex Market

Of course, because we carry out trading activities, the currency must have something to do with forex interest rates. The currency depends and moves on the forex interest rate because it determines the flow of global economic circulation (flow of global capital) into and out in a country.

Interest rates also attract attention from investors and other market participants. They are more interested in doing business in Country A or Country B depending on the forex interest rates offered by the central bank in each of these countries.

Example

You are offered 2 choices to save in 2 different banks. The first bank offers a 1% interest and the other bank offers 1.5% interest, which one will you choose? You already know which ones are more in demand. As with your interests, market participants and investors will also think that way. The higher interest rates in a country will make the currency in the country more attractive. The higher the interest rate, the more likely the country’s currency will strengthen.

Conversely, low interest rates are more ‘shunned’ by market participants. And that makes the currency exchange rates in the country tend to decline even in the long run. The main point learned here is that forex interest rates directly affect the market as well as how market participants and investors choose which countries are most desirable as places for business and investment. This is what makes the value of the currency move up and down according to market interest.

Expectations for Interest Rates or Rates

Market conditions are always changing in anticipating different events and situations, as well as interest rates. Even though interest rates do not change very often unless it is really needed. Most market participants don’t spend too much of their time focusing on current interest rates. What’s more important is that they are more focused on future interest rates and hope that these rates will soon CHANGE so they can anticipate market changes as soon as possible.

Knowing that interest rates or interest rates tend to change in line with monetary policy is important if you want to learn fundamental analysis, especially at the end of the monetary cycle period. When a certain period of time, usually the market moves unclear and feels random when it will face important announcements such as this interest rate report. You don’t need to rush to find the right price to enter the market. The only thing you need to do is be quiet and watch.

At that time, you can only rely on speculators to find out when market trends will move, rise or fall. A change in expectations is a signal that the market will try to speculate. Not only interest rate reports, the market will also speculate on other important reports if the direction is unclear. This is often found where an economic report is positive but prices actually move opposite. So you better be careful.

author
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