Interest Rates is the most important Forex fundamental factor in Forex analysis and it is the main driving factor of currency for Forex currency.
Interest Rates Brief
- Remember the market is focused on whether the central bank is likely to move interest rates and in which direction.
- If together economic data suggest growth, then it is more likely that the central bank will raise interest rate s to control the inflation caused by growth. As rising inflation will negatively affect growth.
- If data suggest a slowdown in the economy, then we expect the central bank to likely lower rates.
- Focus on how likely the new release will be in affecting the current sentiment towards interest rates.
- Remember the higher the interest rate the more attractive it is to investor who are looking to gain interest on their capital, as a result whenever a country raises interest rates we tend to see an increase demand for that countries currency.
Interest Rates Described
Remember, the market is focused on whether the central bank is likely to move interest rates and in which direction. So, if together economic data suggests growth, then it’s more likely that central bank will raise interest rates to control the inflation caused by the growth. And this is because rising inflation will negatively affect growth. And you can understand this because rising inflation will result in increase in prices and increase in prices will result in decrease in demand. Mind and decreasing demand will result in decreased production and less production means less growth. So, this is so increased inflation can immediately stop growth, the central bank as to control inflation so that we can have sustained growth. Remember, decrease production also results in increased unemployment, because if producers are producing less, then producers don’t need as much workers. So, inflation can greatly affect growth. So, the central bank must keep a close monitor on inflation.
Now, if the data suggests a slowdown in the economy, then we expect the central bank to likely lower interest rate, and this is the opposite. If economic is slowing down, then the central bank could lower interest rate to pump more money into the economy to increase demand and increase production. Okay, so if the economy is slowing down, we expect the central bank to lower interest rate and if the economy is growing, we expect the central bank to increase interest rate to prevent, increase inflation. No section recaps. So, remember, always focus on hold lately, the news release will be in effect in the current sentiment towards interest rates. So, we always want to look at the bigger picture, you need to ask yourself, how will this news release affect the central bank’s position on interest rates with this news release influence the central bank to increase interest rate or to decrease interest rate.
Now remember, the higher the interest rate, the more attractive it is to investors who are looking to gain interest on their capital. As a result, whenever a country raises interest rate, we tend to see an increase in demand for that country’s currency. So, remember increase interest rates is positive for country’s currency. Now, as a forex trader and trading fundamentals, you need to ensure that you understand the positions of each of the main central banks on their country’s interest rate. So, once you know all the central banks are positioned towards interest rates, then you have a broader picture of what to expect for the currencies. So, as a trader, one of your main objectives is to know what the central banks are thinking as it pertains to interest rates for their specific country.
And always remember, all men are self-made.
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