Forex Blog: Currency Trading News & Analysis.

July 12th 2007

Interest Rate Differentials Rule Forex Markets

It has been a while since forex markets have been as focused on interest rate differentials as they are now. With the exception of the Canadian Loonie and Australian Dollar, all of the world’s major currencies are rising and falling almost entirely on the basis of interest rates. Until recently, the USD had forestalled its inevitable decline because interest rate levels were significantly higher than in other countries, and foreigners remained willing to finance the US trade deficit. Since the respective Central Banks of Britain and the EU began hiking rates, however, the Euro and British Pound have risen while the Dollar has plummeted. 

Meanwhile, the Japanese Yen is near historic lows because carry traders are borrowing at low Japanese rates and investing abroad. On the flipside, the New Zealand Dollar has surged, and the country is having a difficult time keeping investors away because its interest rates are so high. Interest rates have achieved such force that even changes in expectations, rather than changes in actual rates, are now more than capable of moving the market significantly.

Read More: Back to Interest Rate Expectations

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Posted by Adam Kritzer | in Central Banks, Major Currencies | No Comments »

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© 2004 - 2023 Forex Currency charts © their sources. While we aim to analyze and try to forceast the forex markets, none of what we publish should be taken as personalized investment advice. Forex exchange rates depend on many factors like monetary policy, currency inflation, and geo-political risks that may not be forseen. Forex trading & investing involves a significant risk of loss.