Effects of interest rates on exchange rates
Interest rates are crucial to day traders in the forex market because the higher the rate of return, the more interest is accrued on currency invested, and the higher the profit. Of course, the risk in this strategy is currency fluctuation, which can dramatically offset any interest-bearing rewards. Higher interest rates tend to reduce inflationary pressures and cause an appreciation in the exchange rate. Higher interest rates have various economic effects: Effect of higher interest rates Increases the cost of borrowing.