Central banks & rates
Interest rates move currencies
Money flows toward higher interest rates. When a central bank raises rates (or signals it will), its currency usually strengthens; cutting rates usually weakens it. The big ones: the Fed (USD), ECB (EUR), Bank of England (GBP) and Bank of Japan (JPY).
Risk-on, risk-off
When markets are calm and confident (risk-on), money flows into higher-yielding currencies like AUD and NZD. In fear (risk-off), money runs to safe havens: JPY, CHF and the US dollar.
Commodity currencies and the DXY
Some currencies follow what their country exports: CAD often moves with oil, AUD with metals like iron ore. The US Dollar Index (DXY) measures the dollar against a basket of six currencies; when it rises, the dollar is strengthening broadly.
Test yourself
The ECB unexpectedly raises interest rates. The euro usually…
StrengthensHigher rates attract money into the currency.
Which central bank sets rates for the US dollar?
The Federal Reserve (Fed)The Fed is the US central bank.
Markets panic. Which currency tends to strengthen?
The Japanese yen (JPY)JPY, CHF and USD are classic safe havens.
Oil prices jump. Which currency often benefits?
CADCanada is a big oil exporter.
The DXY measures…
The US dollar against a basket of currenciesA rising DXY means a broadly stronger dollar.
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