what happen when interest rate rise of a currency
it will strengthen as carry trader will move in to buy more
- currency will strenghten
- currency will weaken
Since the choice is only 2, I find it difficult to answer.
Because it depends on the situation of market sentiment at the time.
Maybe you need to add 1 more option, "Uncertain"
A low interest rate leads to the strengthening of the currency. For example, the interest rate is USD = 1.25%, and the minimum interest rate is EUR = 0%. That is, take a loan more profitable in EUR. Therefore, speculators buy US shares just for EUR. And that's why EURUSD has been going up for 8 months already.
A low interest rate leads to the strengthening of the currency. For example, the interest rate is USD = 1.25%, and the minimum interest rate is EUR = 0%. That is, take a loan more profitable in EUR. Therefore, speculators buy US shares just for EUR. And that's why EURUSD has been going up for 8 months already.
If the leadership of any country wants to increase exports, then the country's money should be cheap. In this case, the production of goods will be cheap, as they will buy cheap raw materials and pay off with working cheap money. Now you can sell this product abroad at world prices. To do this, the country's leadership increases the interest rate, and from this money becomes cheaper.
Most likely currency will rise because there will be more people investing in that particular country, it is just basic that when investors sees an opportunity to make better profits they will pour in some investment to it, although it may not be the case most of the time.
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