What impact does each tiny move on interest rates have on the economy, on currency (forex) and on companies (stocks)?
-
Reducing the interest rate causes a depreciation on the currency.
Indeed, the lower the interest rate, the easier it becomes for people to borrow money...
-
But at the same time, the incentive to save money disappears too.
-
As a result, people tend to spend more money (moving around more of their own currency, and increasing liquidity on the market).
-
This creates a negative balance on the currency itself when expressed against foreign currencies.
-
Spending more money means increasing the supply of money without a demand being high enough for that same currency. The consequence of increasing the supply (spending more) creates a shift in the supply curves: more money is supplied than what is demanded.
-
Finally, the currency depreciates, an the economy "heats up".
-
As product and service supply is limited, prices will increase, which will start building inflation.
For foreign exhange trading (forex), you must first understand the fundamentals behind the currency market. You must learn how interest rates impact on the economy, and how political decisions make Wall Street jump or dump.
At SwissTS - Swiss Trading Secrets, we bring you a practical, easy-to-understand teaching of technical analysis.
We will make you practice your new skills in real-market conditions, again and again, until you feel it becomes a second nature of yours. .
Read more about the Swiss Trading Education Courses.
