FOREX THEORY
Why Interest Rates Matter for Forex
Traders (Part 3)
What does this have to do with the
forex market?
Well, currencies rely on interest
rates because these dictate the flow of global capital into and out of a
country. They’re what investors use to determine if they’ll invest in a country
or go elsewhere.
For instance, if you had your
choice between a savings account offering 1% interest and another offering
.25%, which would you choose?
Neither, you say?
Yea, we’re inclined to go the same
route – keep the money under the mattress, ya know what we mean? – but that’s
not an option.
Ha! You would pick the 1%, right?
We hope so… because 1 is bigger
than 0.25. Currencies work the same way!
The higher a country’s interest
rate, the more likely its currency will strengthen. Currencies surrounded by
lower interest rates are more likely to weaken over the longer term.
Pretty simple stuff.
The main point to be learned here
is that domestic interest rates directly affect how global market players feel
about a currency’s value relative to another.
 What does this have to do with the forex...){kind=link}
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