Interest rates influence forex markets by attracting or reducing foreign investment. Higher interest rates usually strengthen a currency, while lower rates weaken it.

What Are Interest Rates?

Interest rates are set by central banks to control inflation and economic growth.

Why Interest Rates Matter in Forex Trading

Currencies with higher interest rates attract investors seeking better returns. This increases demand and strengthens the currency.

Role of Central Banks in Forex

Major central banks:

  • Federal Reserve (USA)
  • European Central Bank (ECB)
  • Bank of England (BoE)

Their decisions directly impact forex prices.

Example: Interest Rate Impact

If the US raises rates and Europe does not, USD often strengthens against EUR.

FAQs

Yes, especially when changes are unexpected.

Through economic calendars and central bank announcements.