Why are forex traders interest rates so important?

TTSMarkets

Newbie
8 0
When it comes to forex markets, there’s one factor that trumps anything else. Many people may think economic indicators can greatly move markets. Of course, you’ll often see stories about wages, prices, etc. making a big impact.

Interest rates, however, play a major role in these market movements. Looking at it, a job report may have a big impact on FX currency pairs. But it has such an impact because of how the report can influence interest rates.

Central bankers meet almost once a month (depends on schedule from one central bank to another). The central bank’s monetary policymaking staff assesses the economy at such meetings.

Assessment requires wages, labor market, GDP growth, etc. As you can see, these economic indicators tend to influence decision-making.

Thus, while economic indicators might seem to have a big impact in one way, the reason behind this impact is how they can shift interest rate expectations.
 

FXX

Experienced member
1,188 210
it's not rate expectations but inflation expectations. Most central banks target inflation and some also target employment. Rates are just one of many tools they use and its inflation expectations that drives rates. That being said it isn't clear cut as you can have forces like oil that can skew inflation and rates aren't an appropriate tool. Raising rates to combate inflation driven by energy doesn't happen if economic growth is not in tandem. High energy prices also have a downward effect on economic growth and you can have a central bank moaning about inflation but not raising rates.
 
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