How National Interest Rates Affect Currency Values and Exchange Rates

A country often issues monetary policy impacting national interest rates to achieve specific economic goals. Whether the country is attempting to promote job creation or stem inflation, the country is intentionally manipulating the monetary supply, availability of credit, and cost to borrow money. As a result, monetary policy that impacts national interest rates changes the value of that country’s currency. A residual impact of raising or decreasing interest rates is that the currency value will become stronger or weaker, and downstream impacts on global exchange rates occur. Let’s take a look at how monetary policy changes currency value and relative currency strength. Generally, higher interest rates increase the value of a country’s currency. Higher interest rates tend to attract foreign investment, increasing the demand for and value of the home country’s currency. Conversely, lower interest rates tend to be unattractive for foreign investment and decrease the currency’s relative v

A country often issues monetary policy impacting national interest rates to achieve specific economic goals. Whether the country is attempting to promote job creation or stem inflation, the country is intentionally manipulating the monetary supply, availability of credit, and cost to borrow money. As a result, monetary policy that impacts national interest rates changes the value of that country’s currency. A residual impact of raising or decreasing interest rates is that the currency value will become stronger or weaker, and downstream impacts on global exchange rates occur. Let’s take a look