Interest Rates and Their Influence on Forex Volatility Interest rates are among the most powerful drivers of currency movements in the forex market. Central banks use interest rate policies to control inflation, stimulate economic growth, or stabilize their currency. When a country raises its interest rates, it typically attracts foreign capital as investors seek higher returns, which in turn boosts the demand for that country's currency. Conversely, when rates are cut, the currency often weakens because returns on investments denominated in that currency become less attractive. This principle is why forex traders pay close attention to announcements from central banks like the Federal Reserve (USD), European Central Bank (EUR), or Bank of Japan (JPY). However, it’s not just the rate decision that matters — expectations and tone (forward guidance) also play a big role. A hawkish stance (favoring higher rates) can strengthen a currency even without a rate hike, while a dovish outlook (favoring lower rates) can have the opposite effect. Understanding these dynamics helps traders anticipate currency trends and position themselves accordingly. #CommunityAMA