How do you predict the currency exchange rate when interest rates change?
Currency rates are significantly affected by the most important economic news. Forex traders know how to ‘trade on the news’—seek to earn money by interpreting information about economic events. Among the indicators that traders pay attention to are inflation data, unemployment data, and the Central Bank's interest rate. The latter generates the most vital movements in the Forex market, thus creating an opportunity to make a profit during news publication. The increase or decrease of the key rate also has a solid and lasting impact on the economy, allowing traders to earn money by making transactions on the formed trend.
What is the correlation between the level of interest rate and the exchange rate?
To grasp how interest rate fluctuations affect exchange rates, we can look at the concept through real-world parallels. Let’s imagine we have savings deposited in a commercial bank. If a bank next door raises its deposit interest rates and surpasses the rate of our bank, it would be prudent to consider transferring our funds to the bank next door and capitalise on the higher returns.
In the real world, a similar dynamic unfolds. When a central bank raises its interest rates, it boosts yields on money market instruments, enticing investors. This triggers a flow of capital from one economy to another. However, to access more lucrative assets, investors must purchase the national currency. Consequently, when the key interest rate is elevated, the exchange rate of the national currency rises as well.
'Every day, there are $7.5 trillion transactions in the currency market, with $6.6 trillion involving the American dollar. Therefore, the foreign exchange market reacts quite keenly when the official interest rate in the United States changes,' said Kar Yong Ang, the Octa financial market analyst. He added that at least two key rate cuts by the U.S. Federal Reserve are expected in 2024, which would bring dollar quotes well below the current levels.
What is news trading?
News trading is a strategy in which a trader makes transactions directly at the moment of news publication. A powerful source of price fluctuations in the global markets is news about politics and economy, inflation, unemployment, the introduction of sanctions duties, and natural disasters. Such news causes strong resonance in currency markets.
Price dynamics during the publication period is typically predictable and is divided into three stages:
Price consolidation. This phase usually involves traders studying the economic agenda and preparing for the publication, in some cases placing pending orders.
Emergence of information. This stage witnesses a sharp burst of volatility and a directed change in the price of a currency pair for a brief period. This presents the primary opportunity for traders to make profits.
Development of price movement and subsequent decrease in volatility. Following the initial surge in volatility, the price movement tends to develop further, and volatility gradually decreases.
The price consolidation phase can last from one hour to several days. The reaction phase to news lasts from 5 to 30 minutes on average, with the most substantial change occurring in the first minute. The development phase lasts from 30 minutes to 4 hours. Depending on the skills, knowledge, and trading style, a trader can take advantage of any of these phases.
Conclusion
We have understood that interest rates affect the currency rate. Since the most significant volume of transactions in the currency market is carried out with the U.S. dollar, it makes sense to focus on the decisions of the U.S. Federal Reserve System on interest rate changes. The next meeting is scheduled for 20 March 2024. The U.S. monetary policy is generally dovish, meaning the dollar tends to decline against all major currencies in 2024.
About Octa
Octa is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services already utilised by clients from 180 countries with more than 42 million trading accounts. Free educational webinars, articles, and analytical tools they provide help clients reach their investment goals.
The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.
Octa has also won more than 60 awards since its foundation, including the 'Best Educational Broker 2023' award from Global Forex Awards and the 'Best Global Broker Asia 2022' award from International Business Magazine.
Currency rates are significantly affected by the most important economic news. Forex traders know how to ‘trade on the news’—seek to earn money by interpreting information about economic events. Among the indicators that traders pay attention to are inflation data, unemployment data, and the Central Bank's interest rate. The latter generates the most vital movements in the Forex market, thus creating an opportunity to make a profit during news publication. The increase or decrease of the key rate also has a solid and lasting impact on the economy, allowing traders to earn money by making transactions on the formed trend.
What is the correlation between the level of interest rate and the exchange rate?
To grasp how interest rate fluctuations affect exchange rates, we can look at the concept through real-world parallels. Let’s imagine we have savings deposited in a commercial bank. If a bank next door raises its deposit interest rates and surpasses the rate of our bank, it would be prudent to consider transferring our funds to the bank next door and capitalise on the higher returns.
In the real world, a similar dynamic unfolds. When a central bank raises its interest rates, it boosts yields on money market instruments, enticing investors. This triggers a flow of capital from one economy to another. However, to access more lucrative assets, investors must purchase the national currency. Consequently, when the key interest rate is elevated, the exchange rate of the national currency rises as well.
'Every day, there are $7.5 trillion transactions in the currency market, with $6.6 trillion involving the American dollar. Therefore, the foreign exchange market reacts quite keenly when the official interest rate in the United States changes,' said Kar Yong Ang, the Octa financial market analyst. He added that at least two key rate cuts by the U.S. Federal Reserve are expected in 2024, which would bring dollar quotes well below the current levels.
What is news trading?
News trading is a strategy in which a trader makes transactions directly at the moment of news publication. A powerful source of price fluctuations in the global markets is news about politics and economy, inflation, unemployment, the introduction of sanctions duties, and natural disasters. Such news causes strong resonance in currency markets.
Price dynamics during the publication period is typically predictable and is divided into three stages:
Price consolidation. This phase usually involves traders studying the economic agenda and preparing for the publication, in some cases placing pending orders.
Emergence of information. This stage witnesses a sharp burst of volatility and a directed change in the price of a currency pair for a brief period. This presents the primary opportunity for traders to make profits.
Development of price movement and subsequent decrease in volatility. Following the initial surge in volatility, the price movement tends to develop further, and volatility gradually decreases.
The price consolidation phase can last from one hour to several days. The reaction phase to news lasts from 5 to 30 minutes on average, with the most substantial change occurring in the first minute. The development phase lasts from 30 minutes to 4 hours. Depending on the skills, knowledge, and trading style, a trader can take advantage of any of these phases.
Conclusion
We have understood that interest rates affect the currency rate. Since the most significant volume of transactions in the currency market is carried out with the U.S. dollar, it makes sense to focus on the decisions of the U.S. Federal Reserve System on interest rate changes. The next meeting is scheduled for 20 March 2024. The U.S. monetary policy is generally dovish, meaning the dollar tends to decline against all major currencies in 2024.
About Octa
Octa is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services already utilised by clients from 180 countries with more than 42 million trading accounts. Free educational webinars, articles, and analytical tools they provide help clients reach their investment goals.
The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.
Octa has also won more than 60 awards since its foundation, including the 'Best Educational Broker 2023' award from Global Forex Awards and the 'Best Global Broker Asia 2022' award from International Business Magazine.
SMX's 1900% Surge Since November Is Not a Momentum Trade; It's Based on Transformative and Deliverable Techology
Executive Interview | Charlotte Bullock | Chief Product Officer, Bank of London | FMLS:25
Executive Interview | Charlotte Bullock | Chief Product Officer, Bank of London | FMLS:25
In this interview, we sat down with Charlotte Bullock, Head of Product at The Bank of London, previously at SAP and now shaping product at one of the sector’s most ambitious new banking players.
Charlotte reflects on the Summit so far and talks about the culture inside fintech banks today. We look at the pressures that come with scaling, and how firms can hold onto the nimble approach that made them stand out early on.
We also cover the state of payments ahead of her appearance on the payments roundtable: the blockages financial firms face, the areas that still need fixing, and what a realistic solution looks like in 2026.
In this interview, we sat down with Charlotte Bullock, Head of Product at The Bank of London, previously at SAP and now shaping product at one of the sector’s most ambitious new banking players.
Charlotte reflects on the Summit so far and talks about the culture inside fintech banks today. We look at the pressures that come with scaling, and how firms can hold onto the nimble approach that made them stand out early on.
We also cover the state of payments ahead of her appearance on the payments roundtable: the blockages financial firms face, the areas that still need fixing, and what a realistic solution looks like in 2026.
In this conversation, we sit down with Drew Niv, CSO at ATFX Connect and one of the most influential figures in modern FX.
We speak about market structure, the institutional view on liquidity, and the sharp rise of prop trading, a sector Drew has been commenting on in recent months. Drew explains why he once dismissed prop trading, why his view changed, and what he now thinks the model means for brokers, clients and risk managers.
We explore subscription-fee dependency, the high reneging rate, and the long-term challenge: how brokers can build a more stable and honest version of the model. Drew also talks about the traffic advantage standalone prop firms have built and why brokers may still win in the long run if they take the right approach.
In this conversation, we sit down with Drew Niv, CSO at ATFX Connect and one of the most influential figures in modern FX.
We speak about market structure, the institutional view on liquidity, and the sharp rise of prop trading, a sector Drew has been commenting on in recent months. Drew explains why he once dismissed prop trading, why his view changed, and what he now thinks the model means for brokers, clients and risk managers.
We explore subscription-fee dependency, the high reneging rate, and the long-term challenge: how brokers can build a more stable and honest version of the model. Drew also talks about the traffic advantage standalone prop firms have built and why brokers may still win in the long run if they take the right approach.
Executive Interview | Remonda Z. Kirketerp Møller| CEO & Founder Muinmos | FMLS:25
Executive Interview | Remonda Z. Kirketerp Møller| CEO & Founder Muinmos | FMLS:25
In this interview, Remonda Z. Kirketerp Møller, founder of Muinmos, breaks down the state of AI in regtech and what responsible adoption really looks like for brokers. We talk about rising fragmentation, the pressures around compliance accuracy, and why most firms are still in the early stages of AI maturity.
Ramanda also shares insights on regulator sandboxes, shifting expectations around accountability, and the current reality of MiCA licensing and passporting in Europe.
A concise look at where compliance, onboarding, and AI-driven processes are heading next.
In this interview, Remonda Z. Kirketerp Møller, founder of Muinmos, breaks down the state of AI in regtech and what responsible adoption really looks like for brokers. We talk about rising fragmentation, the pressures around compliance accuracy, and why most firms are still in the early stages of AI maturity.
Ramanda also shares insights on regulator sandboxes, shifting expectations around accountability, and the current reality of MiCA licensing and passporting in Europe.
A concise look at where compliance, onboarding, and AI-driven processes are heading next.
In this conversation, we speak with Aydin Bonabi, CEO and co-founder of Surveill, a firm focused on fraud detection and AI-driven compliance tools for financial institutions.
We start with Aydin’s view of the Summit and the challenges brokers face as fraud tactics grow more complex. He explains how firms can stay ahead through real-time signals, data patterns, and early-stage detection.
We also talk about AI training and why compliance teams often struggle to keep models accurate, fair, and aligned with regulatory expectations. Aydin breaks down what “good” AI training looks like inside a financial environment, including the importance of clean data, domain expertise, and human oversight.
He closes with a clear message: fraud is scaling, and so must the tools that stop it.
In this conversation, we speak with Aydin Bonabi, CEO and co-founder of Surveill, a firm focused on fraud detection and AI-driven compliance tools for financial institutions.
We start with Aydin’s view of the Summit and the challenges brokers face as fraud tactics grow more complex. He explains how firms can stay ahead through real-time signals, data patterns, and early-stage detection.
We also talk about AI training and why compliance teams often struggle to keep models accurate, fair, and aligned with regulatory expectations. Aydin breaks down what “good” AI training looks like inside a financial environment, including the importance of clean data, domain expertise, and human oversight.
He closes with a clear message: fraud is scaling, and so must the tools that stop it.
Exness expands its presence in Africa: Inside our interview with Paul Margarites in Cape Town
Exness expands its presence in Africa: Inside our interview with Paul Margarites in Cape Town
Finance Magnates met with Paul Margarites, Exness regional commercial director for Sub-Saharan Africa, during a visit to the firm’s office opening in Cape Town. In this talk, led by Andrea Badiola Mateos, Co-CEO at Finance Magnates, Paul shares views on the South African trading space, local user behavior, mobile trends, regulation, team growth, and how Exness plans to grow in more markets across the region. @Exness
Read the article at: https://www.financemagnates.com/thought-leadership/exness-expands-its-presence-in-africa-inside-our-interview-with-paul-margarites/
#exness #financemagnates #exnesstrading #CFDtrading #tradeonline #africanews #capetown
Finance Magnates met with Paul Margarites, Exness regional commercial director for Sub-Saharan Africa, during a visit to the firm’s office opening in Cape Town. In this talk, led by Andrea Badiola Mateos, Co-CEO at Finance Magnates, Paul shares views on the South African trading space, local user behavior, mobile trends, regulation, team growth, and how Exness plans to grow in more markets across the region. @Exness
Read the article at: https://www.financemagnates.com/thought-leadership/exness-expands-its-presence-in-africa-inside-our-interview-with-paul-margarites/
#exness #financemagnates #exnesstrading #CFDtrading #tradeonline #africanews #capetown
