Forex and interest rates

One of the forces that surely affect the Forex market lie in the incentives to invest. If it happens that central bankers want to slow their economy, they proceed to increase their interest rates. If they want to encourage further growth in the economy, they lower interest rates.

Higher or lower rates divert on a matter that has two sides regarding its impact on the economy. The first and most obvious factor is the incentive to invest. If interest rates rise, the incentive to invest also increases; and if the rates decrease, so does the incentive. The second side factor refers to capital expenditures. If interest rates fall, people are more likely to borrow money in the long term, with a new interest rate that is much lower than it previously was. The incentive to buy expensive and taxable items such as houses, properties and cars becomes greater.

When you buy a house or a car, the manufacturer has to pay for materials and labor. Low interest rates increase the number of homes and cars sold, representing a growth in economy. Builders and car makers will eventually have to hire new workers to keep up with demand. Then the demand for workers increases, implying that wages needed to attract qualified candidates also increase in number and in value.

Thus, the lower interest rates may bring increased employment and generating inflation; and it is in this area that central bankers investigate the increase of interest rates to prevent losing balance on the economy lost through the recent economic policies. If interest rates remain low, the impact could be severe. Prices may continue to rise, and if left unchecked, hyperinflation can be generated. Inflation is the rate at which prices rise, and this number can increase quickly if interest rates are not appropriate to the economic movement and the State policies. A weaker economy translates to a weaker currency,