How does a decrease in interest rates decrease a currency's value exactly?

Discussion in 'Forex Trading' started by nooty, Aug 30, 2008.

  1. nooty

    nooty

    How does a decrease in interest rates decrease a currency's value exactly? What does the gov't do exactly?
     
  2. if a currency pays less interest there is less demand for it so people sell it and buy a currency that will pay them more.
     
  3. print money like it's going out of style
     
  4. its called carry trade. Traders will buy a currency with high relative interest rates, and sell the one with low relative rates in order to pocket the difference.
     
  5. Not always.

    Logic says less interests will bring more demand for the currency, effectively RISING rates.
    However this only happens when budgets are balanced and the economy is expanding/recovering.

    What happens is that govt's print money, and there's more supply of this freshly printed currency when interest rates are low.
    The main reason is that rates are usually lowered during economic slowdown periods.