How Interest Rates Influence Forex Movements Interest rates are among the most influential factors in the foreign exchange market. Central banks, such as the Federal Reserve or the European Central Bank, adjust these rates to control inflation, stimulate growth, or maintain currency stability. When a country raises its interest rates, it typically attracts more foreign capital because investors seek higher returns, boosting demand for that nation’s currency. Conversely, when interest rates drop, yields on investments fall, and capital may shift to countries offering better returns, leading to a depreciation of the local currency. This relationship between interest rates and currency value creates trading opportunities for forex participants who monitor central bank decisions closely. However, it's not just the rate change that matters—market expectations play a huge role. If a rate hike was expected, the market may not react strongly. But unexpected moves or hawkish/dovish statements from central banks can cause rapid forex fluctuations. #CommunityAMA