Impact of interest rates on currency rates and foreign exchange markets

Foreign exchange market is one of the most famous modes of trading today. In the past, foreign exchange trading was reserved only for the rich and high-ranking financial establishments. Today, many people including the average earners are part of the business. However, traders should know that the minimum interest rates have lots of influence on foreign exchange markets and currency rates.
Besides such factors like inflation, and exchange rate, interest rates is a major determining factor of a country’s economic level. Interest rates are among the most analyzed and watched governmental manipulated economic measures.  The interest rates from central banks to a great extent influences the way customers are charged.
For example, if the economy is performing below schedule, the duty of the central bank at this point is to lower the interest rates; this will make it easy for people to borrow. In most cases, this boosts the consumer spending which will in the long run expand the economy. In a scorching economy, the central bank normally slows down the inflation rate, thereby making borrowing more expensive. Central bank is bent on regulating the country’s economy.
Investors are always interested in interest rates especially those ones that are seeking for synthesis of safety of funds and yield returns. If interest rates are high, there will be an increased demand for assets denominated in that currency, but when the reverse is the case, it will give rise to a jump or paradigm shift from that currency to another. All these take effect simultaneously.  And traders make good money when either is the case.
All we are saying is that a rise in interest rate will give birth to appreciation; that is a great rise of sterling against another currency while a fall in the interest rate will pave way for a depreciation; a fall in the value sterling against another currency(ies) as the case may be.
The interest rate influences the foreign exchange markets and currency rates because it has a great impact on the demand and supply of those foreign currencies. Lots of people are making good money by moving funds from one currency to another; by taking maximum advantage of the returns in several countries.
To cite an example, if the interest rate in the United States is 3% but was about 5% in the United Kingdom, you will gain lots of benefits by transferring money in dollars based securities to the denominated. (We are talking about transferring money from a bank account that pays 3% to another that is paying higher). This will mount severe pressure on the volume of sterling and then push its value against the dollar.
The summary is that interest rates affect foreign exchange rates and currencies in a great deal. The information above is some of the ways such happens in the present day global economy. You will advance higher in your foreign exchange business if you also conduct your own research and study magazines, newspapers and latest central bank reports on the expected trading in future.