💱 Interest Rates — The Engine Behind Every Currency Move
💡 The Lesson
Currencies don’t move randomly — they move because of interest rates.
When a country raises or cuts rates, traders and institutions react instantly.
If you understand this one concept, you’ll start to see the market instead of guessing it.
📈 The Core Idea
Interest rates represent the price of money.
When rates go up → borrowing becomes expensive → currency strengthens.
When rates go down → borrowing gets cheaper → currency weakens.
Example:
If the U.S. Federal Reserve raises rates while the European Central Bank keeps them low, money flows into USD for better returns → EURUSD drops.
🏦 Why Central Banks Move Rates
Central banks raise or cut rates to control:
So when you hear a central bank saying “inflation remains high”, expect a hawkish tone → possible rate hike → stronger currency.
📊 How Traders Use This
Forex traders don’t just follow charts — they track rate expectations.
The key drivers:
1️⃣ CPI (Inflation reports)
2️⃣ GDP growth
3️⃣ Unemployment rate
4️⃣ Central bank statements (FOMC, ECB, BOE, etc.)
Markets move before the official decision — based on expectations, not surprises.
⚙️ Pro Tip — Watch the “Differential”
It’s not the rate itself, but the difference between two currencies that moves the pair.
Example:
USD = 5.25%
JPY = -0.10%
Rate differential = 5.35% → USDJPY tends to rise.
🚀 Takeaway
Charts show what’s happening.
Interest rates explain why it’s happening.
Master this, and you’ll read forex fundamentals like a pro — one central bank at a time.
📢 Join my MQL5 channel for more forex fundamentals and trading insights:
👉 https://www.mql5.com/en/channels/issam_kassas