Why is interest rate important for Forex traders?

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The most significant factor that affects the foreign exchange market is the change in interest rates.  Interest rates are controlled by one of the eight global central banks.

Changes in interest rates are an indirect reaction to different economic indicators noticed during the whole month.  These changes can move the market with full force and quickly. Since the changes in the surprise rate significantly affect the traders, you can get higher profits by having deep knowledge of how to predict and respond to these changes.

Key points:

• The Forex market tracks how the exchange rates of different currency pairs vary.
• One of the main factors affecting these exchange rates is the differences in each country’s interest rates.
• Although we can predict the interest rates using economic models, surprise announcements, and news, these directly impact the rates that affect FX prices.

The basics of interest rate:

Interest rates are very important for day traders in the forex market because if the return rate is higher, the profit will be higher. Also, the interest is high on the invested currency.

In this method, the risk is currency fluctuations that can cancel out the revenue-generating rewards. It is always not wise that you purchase currency at high interest (financing them with currencies of lower interest)

One must view interest rates with caution because any news regarding interest rates can be released through central banks.

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