Interest rates refer to the cost of borrowing money, typically set by a country’s central bank. They play a crucial role in economic stability by influencing inflation, spending, and investment.
Interest rates directly affect the forex market, as they influence currency values. Higher interest rates attract foreign investment, strengthening the currency, while lower rates tend to weaken a country’s currency.
When the U.S. Federal Reserve raises interest rates, the USD typically appreciates due to higher returns for investors. Conversely, rate cuts may lead to a depreciation of the currency.
Test your knowledge of interest rates and their impact on forex trading with the following questions:
