Interest Rates The increases and decreases in interest rates have a direct effect on the foreign exchange market.
It should also bear in mind that decisions on interest rates affect the foreign exchange market and affect other financial needs. Such as stock markets. This relationship can be seen in the following example:
On February 5, 2018, Jerome Powell took office as the new chairman of the Fed. That same day, the Dow Jones registered one of the most significant falls in its history, falling 4.6% compared to the previous day’s close. This setback was caused by fear of the policy of interest rate hikes announced by the new president of the FED. This fall, as is logical, extends to the rest of the Wall Street indices.
The answer is simple. When interest rates rise, companies’ financing cost increases, so they must allocate more economic resources to meet their financial needs. By increasing their costs, companies see their ability to grow limited. This decrease in the growth of companies entails a reduction in the valuation of their shares. A drop price they list on the market.
Cases. Sometimes, it also happens that unexpected events occur that result in specific companies or sectors acquiring an advantage situation. This advantage can be, for example. An increase in demand for the products they sell or the disappearance of competitors. This situation causes an increase in interest in the shares of these companies, which increases their price on the stock market. Two examples of these situations are explained below:
The announcement of military intervention abroad can cause the price of shares (learn how you can buy shares online) of war material and weapons (Lockheed Martin, Rockwell Collins, etc.) to increase markedly.
Armed conflicts often increase profits for military manufacturing companies. Their shareholders and speculators. Likewise. These conflicts can also increase the value of the shares of the companies that supply them with raw materials and other technology companies that provide services that have their application in this type of conflict.
What happened after the attacks that occurred in France in 2015. After an event such as an attack, it is normal for concern to improve surveillance systems to increase after the attacks in Paris in November 2015. The American surveillance camera company Flier Systems increased its stock market value by 12% in the following three days of the attack.
What announcements should I pay attention to in my trading operations? The answer is not unique, depending on the instrument you are trading. However, you will need to follow some specific information regardless of the trading instrument. All investors should be aware of some systematically repeated announcements and give continuous signals about the evolution of the world economy. These ads are:
In short, you should bear in mind that
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