Interest rates are a fundamental factor in the movements of currencies, so thorough research on the market and how interest rates affect currencies will help you to make better trading decisions.
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How do Central Banks and Interest Rates affect the market?
Central banks are responsible for the country's monetary policy and their nation's currency stability. Interest rate decisions by these banks can drastically affect the FX market and are typically made as a response to multiple economic factors, such as the exchange rate, inflation, unemployment changes etc
Central banks manage interest rates in order to control inflation. Higher interest rates will generally increase the value of a country's currency as they attract more foreign investments, while lower interest rates encourage more spending, investing and borrowing.
The table will help you to understand the most likely impact on the currency of the country of the central bank:
The more of a difference between the expected amount and the actual result, the more of an impact it will have on the currency, and there will often be immediate strong movements in the exchange rate. Bear in mind that there is often increased volatility in the market in the lead-up to any major economic event and after it.
Interest Differentials
Central banks are responsible for the country's monetary policy and their nation's currency stability. Interest rate decisions by these banks can drastically affect the FX market and are typically made as a response to multiple economic factors, such as the exchange rate, inflation, unemployment changes etc.
Central banks manage interest rates in order to control inflation. Higher interest rates will generally increase the value of a country's currency as they attract more foreign investments, while lower interest rates encourage more spending, investing and borrowing.
Major Central Banks
US Federal Reserve 💵
The interest rate decision is made by the Open Market Committee (Fed's division) eight times a year, where 12 members of the Committee vote for the rate level changes. The distribution of the votes cast is immediately known after the meeting.
Updates appear at 18:00 GMT (19:00 DST).
The minutes of the last Open Market Committee meeting are then published three weeks later.
Bank of England 💷
The interest rate decision is made by the BoE Monetary Policy Committee 8 times a year.
Updates appear at 11:00 GMT (12:00 DST). The Monetary Policy Committee includes 9 members.
The minutes are published simultaneously with the MPC decision.
European Central Bank 💶
The interest rate decision is made by the Governing Council of the European Central Bank.
Updates appear at 12:15 GMT (13:15 DST).
After a decision is made, a press conference is traditionally held 30 minutes later.
Bank of Japan 💴
The interest rate decision is made by the BoJ Monetary Policy Committee 8 times a year.
Updates appear between 3 and 5 GMT. The Monetary Policy Committee includes 9 members.
Summary of opinions are published in less than 2 weeks, minutes - after 5 weeks.
Swiss National Bank
The Swiss National Bank makes interest rate decisions four times a year announcing the results at 07:30 GMT (08:30 DST).
Bank of Canada
The Bank of Canada makes interest rate decisions eight times a year, announcing the results at 13:00 GMT (14:00 DST).
Reserve Bank of Australia
The Bank of Australia's interest rate decision meeting takes place 11 times a year, with the result known at 03:30 GMT (04:30 DST).
Reserve Bank of New Zealand
The Reserve Bank of New Zealand makes its interest rate decision seven times a year, announcing the results at 01:00 GMT (02:00 DST).
Trading tools to analyse interest rates
Use the FxPro Economic Calendar to follow upcoming Interest Rate Decisions and plan your trading with reports due to be released, previous economic events, consensus forecasts and estimated volatility.
You can also check out our market reviews from our expert analyst team at FxPro.News