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Impact of Interest Rates
How central bank decisions affect major currency pairs.
Macro Economics
Introduction
Interest rates are one of the most powerful tools in economics and finance. Set by central banks, they influence borrowing costs, consumer spending, business investment, and ultimately, market behavior. For traders and investors, understanding how interest rates affect currencies, stocks, and bonds is crucial for making informed decisions.
How Interest Rates Affect the Economy
- Consumer Spending – Lower rates encourage borrowing and spending, while higher rates discourage it.
- Business Investment – Cheap credit stimulates expansion; high rates slow investment.
- Inflation Control – Central banks raise rates to curb inflation and lower them to stimulate growth.
- Currency Value – Higher rates attract foreign investment, strengthening the currency.
