Why Interest Rates Matter
for Forex Traders
Simply put, interest rates
make the forex world go ’round! In other words, the forex market is ruled by
interest rates.
A currency’s interest rate
is probably the biggest factor in determining the perceived value of a
currency. So knowing how a country’s central bank sets its monetary policy,
such as interest rate decisions, is a crucial thing to wrap your head around.
One of the biggest
influences on a central bank’s interest rate decision is price stability, or
“inflation”.
Inflation is a steady increase
in the prices of goods and services.
Inflation is the reason why
your parents or your parents’ parents paid a nickel for a soda pop in the
1920’s, but now people pay twenty times more for the same product.
It’s generally accepted
that moderate inflation comes with economic growth.
However, too much inflation
can harm an economy and that’s why central banks are always keeping a watchful
eye on inflation-related economic indicators, such as the CPI and PCE.
