The Impact of Interest Rate in The Forex Market

10/25/2021
10:32 am

Most traders are waiting for news of interest rate decisions for countries, as it is a very important matter and every professional trader must master it.

At the outset, the interest rate should be defined as the rate that is paid by the central bank of a country on the deposits of the commercial banks of that country for the purpose of investment, and when the expected interest rate changes, the value of the currency changes.

Where interest rates are one of the most important factors affecting the direction of movement of currency pairs prices in the forex market, and the determination of the interest rate varies from one country to another according to economic conditions and monetary policy objectives.

The central bank raises the interest rate during periods of economic growth to control the volume of loans available to individuals and institutions In order to curb the inflation rate and in the event of an economic stagnation of a country, the state will reduce the interest rate and this will positively affect the stagnation, making the price of money cheap and increasing borrowing and consumer spending, and thus the state’s economy will recover and emerge from the economic stagnation, here traders can take advantage of the fluctuations in currency pairs due to a change Interest rates and interact with them correctly to achieve profits.

That higher interest rates in advanced economies, if driven by more stringent measures by central banks, would harm emerging market economies. Interest rates make borrowing more expensive and this helps reduce spending and inflation. The higher the interest rates for a currency, the higher its value and the higher the demand for it.

The economic wheel rotates as follows:

Traders should follow economic news that helps them understand and anticipate what decisions will be made regarding monetary policy for any country.