Make money with Forex using interest rate policy

What is the use of economic indicators?

Analytical methods for predicting future foreign exchange volatility by analyzing “basic elements of the economy” such as interest rate policy or announcement of employment statistics.

The forecast value of the economic index is as follows. First, experts such as financial institutions or advisory groups will make predictions, next the media such as Reuters will collect and summarize, then agree as a market forecast.

In addition to this forecast, how important the actual published value is (foreign exchange movement will follow or divert from this forecast) will become a major cause of market volatility after the publication of the forecast value.

Immediately after the publication of the economic index, there will be a very high probability that foreign exchange will fluctuate on one side in a few minutes, so you can take advantage of this fluctuation and make money from Forex trading.

How to use interest rate policy

Policy interest rate is the interest rate when the central bank allocates funds to a normal bank (domestic bank).

This interest rate is regulated by the central bank’s fiscal policy, Interest rates will be high if the economic situation is favorable, interest rates will be low in times of economic difficulties.

Depending on the situation of interest rates, if the economy is growing, the saving or borrowing rates will increase, circulation of currency will be limited. If the economy is slowing or in recession, interest rates will decrease, meaning more circulation of currency.

trading using interest rate policy

Source: www.forbes.com

Typically, the increase of interest rates will be the main reason for the appreciation of the currency because of the widening difference between domestic and foreign rates. Again, if interest rates fall, it will be the cause of currency depreciation due to the narrowing of interest rate spreads.

In addition, even if the benchmark interest rate remains unchanged, there are cases where, if it is seen to play a role in boosting the economy, the foreign exchange market price will rise but if market participants judge that the decision to hold interest rates is not appropriate, the forex market price will decline.

Set of points to trade with interest rate policy

When the economy is growing, the interest rates are high, when the economy is slowing, interest rates are low.

  • Increasing interest rates will cause currency appreciation
  • Decreasing interest rates will cause currency depreciation