How Interest Rates Create Trading Opportunities & What Drives Currency Movements

Posted in Forex
8 minute read
How do interest rates affect currency prices

Learn how interest rates influence currency prices and explore trading strategies based on interest rate differentials. Understand the relationship between central banks, interest rates, and forex markets.

What are the Interest Rates?

The Interest Rate Cycle and Its Impact on Forex Supply and Demand

Interest Rate Cycle (2)
Source: Canva, created by Zain Vawda.

How Does Inflation Affect Forex Exchange Rates

USINTR_2024-11-11_16-57-55
Source: TradingView. Past performance is not indicative of future results.

How do Currencies React to Interest Rate Decisions?

Market Expectations Interest Rate Decision Impact on FX
Rate Cut Rate Hold US Dollar Appreciation
Rate Hike Rate Hold US Dollar Depreciation
Rate Hold Rate Hike US Dollar Appreciation
Rate Hold Rate Cut US Dollar Depreciation

Mastering Interest Rate Trading Strategies

Potential Opportunities from Forex Interest Rate Differentials

Example of a EUR/USD Trade Idea Based on Rate Differentials

2024-11-12 13_59_46-Interest Rate Probabilities _ EU ECB (ESTR Based)
ECB Implied Rates. Source: LSEG.
2024-11-12 12_52_13-Interest Rate Probabilities _ US Federal Reserve
Federal Reserve Implied Rates. Source: LSEG.
EURUSD_2024-11-13_09-23-44
Source: TradingView. Past performance is not indicative of future results.

Become an Expert in Rate Differential Trading

gettyimages-1451066023-Mt. Fuji and Tokyo skyline
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Frequently Asked Questions

What are Interest Rates?