How do interest rates affect currency values?

Discussion in 'Forex' started by bukhalifa, Jun 18, 2007.

  1. How do interest rates affect currency values?

    Higher interest rates charged for a particular currency tend to increase the relative value of that currency. When interest rates are high, money is worth more since it costs more to borrow. Enhanced value draws increased demand from investors for that particular currency, thus pushing up the price and value of a currency.

    My question is, what are the POSITIVE and NEGATIVE sides to this?(raising interest rates or lowering them) what do investors/consumers gain or lose in both situations?
  2. MrAngry


    weak currencies traditionally have high interest rates - so the positive carry can be eroded quite quickly. Think of the traditional response by the authorities in times of stress. The win/win comes when you get a strong currency with relatively high interest rates - just look at ASUD, KWD and even GBP etc over past couple of years.