Why Interest Rates Are Important In Forex – In the world of trading, especially forex there are many things that must be considered. One of the biggest factors of concern is interest rates that can affect the forex market conducted by one of the central banks globally.
The global central bank is located in various large countries, more details there are eight central banks in the world, including the following:
- United States: The Federal Reserve System (The Fed)
- United Kingdom : Bank of England (BoE)
- European Union: European Central Bank (ECB)
- Australia : Reserve Bank of Australia (RBA)
- Japan : Bank of Japan (BOJ)
- Canada: Bank of Canada (BOC)
- New Zealand: Reserve Bank of New Zealand (RBNZ)
- Switzerland : Swiss National Bank (SNB)
The above central banks can generally keep the inflation rate at a normal level and change the interest rate. These changes are an indirect response to economic indicators.
Both of these, inflation and interest rates can affect the value of an asset or currency for both foreign investors and domestic investors who do forex or forex activities.
For more details, let’s discuss everything in the article below about why interest rates are important in forex in full.
Definition of Interest Rate on Forex
Interest Rate is an instrument that can control the circulation of money through monetary policy in a country. This is done because it is believed to increase the purchasing power of investors and of course get a profit in an investment.
For example, if you save money in a bank with a deposit interest rate of 10%, where if you save 100 million rupiah, in some predetermined time you can receive 110 million.
There is a term called high risk, high return where parties with high risk often change offers by offering high interest rates to investors to keep investing.
How can interest rate changes affect the economy?
This is often asked by many people, the answer is that the central bank can apply a higher interest rate if the amount of money supply in a country is experiencing high inflation or excessive amounts of money.
There are many factors that can affect this, one of which is the lack of purchasing power of the community, which leads to people being reluctant to borrow money and instead diligently saving.
The Effect of Interest Rates on Forex
As with deposit investors, in forex trading high interest rates are also one of the things that are quite attractive to forex traders.
One of the reasons why interest rates are important in forex is that trading foreign currencies with high interest rates is an additional opportunity to buy other currencies at lower interest rates.
Therefore, investors or forex traders can trade foreign currencies in countries that are experiencing economic expansion which of course has a high trading risk.
Therefore, the demand for the country’s currency will increase which of course is accompanied by its value also increasing.
Tips for Monitoring Interest Rates
As one of the most important factors, interest rates can be used as a factor that can determine the value of a currency. When a country’s interest rates change, the value of the currency will follow suit and determine the global flow of funds.
Therefore, it is very important to keep an eye on interest rates in a particular country, as follows:
1. Routinely Monitor Data
In fundamental analysis, regularly monitoring existing data is an important action in determining a country’s interest rates.
Therefore, it is often necessary to monitor various data either from the media or other things to get fundamental information because it can change every time.
2. Strategize
Traders are required to keep going using the strategies they create, this also applies to thinking about currency movements if at any time interest rates will change.
Closing
That was the explanation of why interest rates are important in forex that was explained in the article above. You must understand various concepts related to forex whether it is technical or fundamental because these two things are very important in forex trading.
Hopefully this information is useful and can help you add insight, especially in the world of forex trading investment.