FX Traders' Basic Course for “Adult Economics” — Part 4 Reading Currency Markets from Interest Rate Trends [Kouichirou Amaya]
This企画 allows you to systematically learn fundamentals (analysis). Up to the previous sections, I think we deepened understanding of “The Basics of Interest Rates.” From this section onward, as an application, we will explain how interest rate trends affect the FX market and how to read the FX market from interest rate trends.
Table of Contents for Session 4
1. Currencies with higher interest rates are favored by investors
2. Priced-in and exhaustion of news
3. Understanding authorities’ intentions from the FOMC statement
4. How to read the dot chart
5. Listening to the market via FF rate futures
6. Summary of Session 4
※This article is a reprint/edit of a FX攻略.com September 2017 issue
Koichirō Amaya (Amaya Kōichirō) Profile
For over 20 years, he has held senior foreign exchange positions at major foreign banks such as UBS, JP Morgan, and BNP Paribas. He has a history of ranking highly in the “EuroMoney” financial magazine’s Tokyo FX market popular dealer rankings. In 2006, he became a freelance financial analyst, providing FX market information to FX companies and portal sites with his sharp, independent perspective.
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Currencies with higher interest rates are favored by investors
In the previous sections, we discussed the basics of interest rates, and in this article we finally move to the application: how interest rate trends affect the FX market and how to read the FX market from interest rate trends.
Interest rate is the earnings you obtain from that currency, so currencies that look likely to raise their rates tend to be bought, while currencies likely to see rate declines tend to be sold. In the second installment, “The Basics of Interest Rates — Part 1,” we explained that it is not simply high nominal rates that matter; real interest rates are more important. Currently, inflation expectations are very low in major countries, and nominal rates are at historically low levels, so currencies with slightly higher rates tend to be favored by investors.
