03-03-2021 06:27 PM
Do interest rates move the forex market?
Definition of interest rates
Interest rates represent the Libro rate for currencies in addition to an additional spread that depends on the degree of complexity of the transaction and the risk profile for the applicant.
The forex or currency exchange market is linked in all its aspects to money, so the currencies of all countries are sold, bought and traded in the forex market. One can buy one currency against another currency and sell it later to make profits, for example, the speculator can buy the Japanese yen when it starts to rise against the US dollar, and when he sells the yen later and repurchases the US dollars, this will bring him some profits.
The foreign exchange market, which is also known as the forex market, is influenced by a large number of factors. The market itself has become one of the most popular forms of trading tools during the present time. There was a belief in the past that this market is limited only to the wealthy, but with the low minimum necessary to start trading continuously, this market is available to all people and from different financial levels the two most attractive things In this market they are the financial leverage and liquidity available in it. Most of the people who have a great background in the forex system know that they can use a small amount of money work and convert it into larger quantities using the foreign exchange market, however, when you start working in the forex market, you have to be on Knowing all the things that affect this market, knowing everything that is going on in this world in detail is an integral part of the logical and rational trading industry.
Interest rates are one of the things that move the foreign exchange market, so while the currency rate remains the main focus of this market, interest rates also have a direct effect on these prices. Therefore, in order for one to be able to understand the foreign exchange market, one must understand the current conditions for each price. Interest separately and while economic and political conditions are also among the things that have a great impact on the forex market, there is nothing that moves this market more than interest rates do. Sometimes we must remember that money usually tracks the effect of interest rates, so when the interest rate of a currency rises, investors will have the desire to obtain greater returns, and then we can see the money flowing towards the currency of this country when the interest rate in one country rises. It makes its currency stronger against other currencies. The logical explanation for this seems simple, which is that investors are always looking for a currency that gives them greater returns and profits than others. In the end, high interest rates are beneficial for any currency, just as their decline is negative for this currency.
Government participation in the forex market is not uncommon. Sometimes, governments may flood the foreign exchange market with their local currency, and although this may seem foolish by those who do not know anything about the forex market, those who have a background in this field and know it well can understand this matter completely. When governments flood the forex market with their local currencies, they aim from behind this to reduce the value of the currency, and when they buy their local currency, this means their desire to raise its value. Some may know that this strategy is called the intervention of central banks. Governments do this in order to help their overall economy, which in turn is a contribution to keeping the forex market strong and stable because when you have these big players who create the necessary appearances to keep everything fair as possible, then this Makes the market an attractive place.
It is true that interest rates can move the market for a short period, but the naturalness of the foreign exchange market makes it difficult to imagine the continuation of this effect for a long period of time. Designing the market itself as it is characterized by large size restricts interest rates from having full control over the movement of this market, however. Many times, experts seek to anticipate the timing of raising or lowering interest rates. One of the most common things to keep an accurate follow-up on interest rate expectations is to follow up on the performance of economic indicators such as inflation and others. Sometimes experts and investors also listen to the conversations of politicians and people with economic influence where they can gather Separate clues but help them build correct guesses before announcing interest rate changes. Most of the time, there are only slight pre-signs before announcing an interest rate move.
As you can see, the effect of interest rates in the foreign exchange market is strong. Interest rates help determine which country’s currencies are the strongest, although this of course is a relatively matter compared to the rest of the currencies that are traded in the market at the same time. When you think about the rises and falls of interest rates, it is You can always remember that with low interest rates, this is good for investors and for the local currency. When interest rates fall, it is not as good as it seems. When you keep interest at a low level for a long period of time, the market then seems a bit boring. Nevertheless, the wonderful thing is. In the forex market, it is that when the government intervenes, which is what happens frequently these days, there is always hope for an improvement. This is why if you have just begun to learn to trade in the forex market, you should not forget to pay some attention to watching the rises and falls of interest rates around you. So you have the power to make the best investment decisions possible.
Though trading on financial markets involves high risk, it can still generate extra income in case you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.
Thanks under the first post will be ignored for the purpose of distribution of prizes