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  • Jun Wang
  • Posted Articles: 13
  • Last Posted: 2017-07-20 09:09:43
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Importance of Interest Rates to Currency Traders

2017-07-20 09:09:43

Interest rate movements shift the direction of financial markets worldwide. Hence, rates matter to forex traders a lot. Changes in rates represent central banks’ indirect response to certain economic barometers throughout several months. Rate decisions, especially the sudden ones, tend to shape the markets right away. Surprise rates frequently make the largest impact on currency traders.

Forex day traders are keen on interest rates. The higher the rate of return, the greater interest earned on a currency investment and the greater the profit. On that note, currency fluctuation is factored here since it can substantially outweigh any interest-bearing gains. It is not always a sound decision to purchase currencies with greater interest. Should that be the case, it would be hugely profitable for anyone who knows this fact. Average day traders are mindful of rates as well.

Any trader can foresee a central bank’s rate decision. If economic indicators show minimal improvement, rates will remain the same. Conversely, better indicators signify economic progression and the central bank will either hike or slash rates. Take note that significant declines in these barometers can lead to a lower rate to induce borrowing.

Traders can also make presumptions by deducing predictions and trailing major announcements. Interest rate movements are much expected in most cases. Therefore, banks, brokerage firms, and traders will already have their respective rate forecasts. It is advisable to read about four to five estimates to obtain a more precise projections. Major news move rates, too, such as a statement from a central bank head.

Of course, traders and analysts are capable of predicting rate decisions all the time. One must remember that central banks are good at surprises. For instance, in the event of a rate hike, expect currencies to advance. In case of a rate cut, forex traders will perhaps purchase and sell currencies with higher rates.