Each country uses a variety of instruments given its authority to maintain a healthy development in its economic structure and to maintain stability in the overall level of prices. The authority to change interest rates is perhaps the most important of these. Central banks may broaden or narrow the money supply in the market by changing interest rates. If the supply of money changes in any way, it will affect its value in absolute terms. In order to regain balance in the balance of supply and demand, which is the general theory of the economy, prices must move.
Of course, the currency of a pair of currencies on the one side can change the direction of the exchange of value graphs, since Forex markets generally trade on a currency pair that we call the pair currency.
What happens when the interest rate changes?
When the Central Bank increases the interest rate, people withdraw from the different liquid sources to deposit deposits and start claiming their money. Because depositing deposits with their own country’s money becomes more attractive. This change between investment sources affects many variables, but the value of money, which is our main position, will rise because demand is rising. As real and legal entities turn to deposit accounts in order to make profits, they start investing the other resources in their hands into the bank. Naturally, the value of the currency, which has risen in demand, will inevitably rise in this respect. Similarly, when the interest rate falls, the value of money will fall.
If you are looking to follow basic analysis methods, monitoring changes in countries’ interest rates can be a very good key to reducing your investment risk. Knowing that the value of money will rise when the interest rate rises and the value of the money will decrease when it falls, will give you an advantage if you follow the country’s economy. If the base currency is the currency pair (Sample; USD in USD / JPY), raising the interest rate in the USA may cause the price graph to be triggered upwards.