Never Underestimate the Impact of Interest Rates on Forex Markets
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Understanding how the FX market works is a job that most find hard to accomplish. Mostly traders go for conventional media sources but some are even inclined towards searching for a forex blog or a forex forum to get the required data about forex trading. Experienced forex traders who spend their lives trading currencies of different nations of the world often hardly have a clue as to what is the most essential factor that drives the market. If you gather information about forex market you’ll find out that actually it’s the prevailing interest rates in the economy that drive the FX market.
Forex Market and its players
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The common perception is that a forex trader has to attach the highest level of importance to the currency prices if he wants to stand any chance of surviving in the market. However, the importance of interest rates can’t be ignored either, and that’s the reason why experts believe that the trends in the market can never be understood unless the interest rates are brought into the perspective. Most of the forex marketers are usually visiting forex forum in order to gather data on the current trend of the business.
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There is in fact a rather complex relationship between fluctuations in interest rates and changes in currency prices. Interest rates dictate the level of cash inflow in a country because when interest rate rises in a country, foreign investors are induced into buying that country’s currency at a broader scale, thus increasing that currency’s price. Considering this relationship, it is often seen that Governments directly intervene in forex markets so that its currency price appreciates. Despite the effective role interest rates play in the mechanism of forex markets, the fact of the matter is that interest rates can only have an effect on the condition in the market for a short period. Several other socio-economic and political factors step in to influence the market in long-term.
Trading Strategies Interview with Nial Fuller
As about forex trader you have to be on top of your game by keeping a close watch on the rules of the game. Although, there is hardly an instance where traders are able to tell any future fluctuations in interest rates, still FX traders stick to the general rule that when interest rate increments, this causes an unfavorable effect on domestic currency and vice versa.
