Wednesday, April 29, 2015

FOREX THEORY


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.




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