Investors with foreign exchange trading experience must be familiar with exchange rate changes. There are many factors that affect exchange rate changes. Today, Bian Xiao will talk about interest rates among many factors.

The impact of interest rates on trade;

Rising interest rates → increasing foreign investment → increasing money demand → currency appreciation → reducing the competitiveness of export commodities → reducing trade.

Lower interest rate → lower foreign investment → lower demand for money → lower currency → higher competitiveness of export commodities → higher trade.

The influence of interest rate on investment flow;

Interest rate rises → return on investment increases → investment flow increases.

Lower interest rate → lower return on investment → lower investment flow.

The influence of interest rate on money supply;

Interest rate rises → money supply decreases.

Interest rate falls → money supply increases.

The Influence of Interest Rate on Monetary Strength

Interest rate rises → currency strengthens.

Falling interest rates → soft currency

Adjusting interest rate is the main tool for the central bank to adjust exchange rate. When the inflation rate is high or the market is tight, the central bank will raise interest rates, and when the national economy is in recession or the unemployment rate is high, the central bank will lower interest rates.

There are many factors that affect the exchange rate, but usually interest rates have a greater impact, but sometimes the central bank will take the initiative to stabilize prices.