Direction of interest rate

What do you think about the movement of the interest rate?

 

It means a weaker dollar, which means less pounds for the same dollars, which means less money for me

 

Regarding the movement of USD yesterday, it seems the market expect a rate hike.

 

Yup, interest rates are on the way back up. Should cool down the overheated real estate market.

 

Interest rate of what and where? Thats' pretty vague me matey!!

 

I would assume he meant US intrest rates primarily. But intrest rates, more or less, move in unison globaly. Money supply has increased signifiacntly in the past few years with this low intrest rate environment. Governments are now starting to raise rates to contract the money supply. To much money flowing through the system (liquidity) causes inflation as spending gets out of hand.

Low intrest rates make it very attractive for people and businesses to borrow money. This pumps more cash into the system. More money being spent in the system means more opportunity for profit for business and more employment for workers. More employment means people have more disposable cash to spend, so more goes into the system creating more opportunity for profit. And so on, and so on. Possitive feedback loop.

More spending means more demand for goods. As the supply of goods can no longer meet the demand, prices start to rise (inflation). As prices rise business profits decline so they begin to cut costs (decrease spending). People at the lower end of the pay scale also spend less because life has become more expensive and/or they are loosing jobs. Now less money is flowing. If left to continue on its own inflation can get out of hand and the inflated sytem can crash suddenly. Fear is a much more powerfull motivator than profit so the downswing can happen much more abrubtly than the upswing.

By raising intrest rates, as inflation starts to set in, it can cool things down more slowly. It makes it less attractive to borrow so less goes into the system before the point where everyone says "hey, hold on a minute. This house of cards is about to collapse. Lets take our money and run."

The cycle is perpetually going up and down. Government intervention, via intrest rates, helps to smooth out the swings. In theory at least. With so much pressure from business and individuals, governments are slow to react to raising the rates. Everybody is making money hand over fist and don't want the party to end. But they all know it will end badly if they don't try to control it. Same happens at the other end of the cycle. Everybody is in denial that things are getting bad and a recession is setting in. If government begins to lower rates they are admitting the economy is hurting and want to try to inject more cash into the system. So they wait till everyone is screaming "resession" before they reverse their policy.

It aint perfect but it does help keep it from swinging wildly back and forth.

Rates move in unison world wide (at least for all the major interconnected economies) because countries are in competition with each other for global trade and flows of capital. Once one begins to lower rates (they have all been starting to think about it) the others soon follow. Capital will flow to where it is cheaper to borrow and no nation wants to be left out when the money pumps start flowing. And when they start raising rates nobody wants to remain the cheap guys for too long because they are already starting to experience the effects of excess liquidity and infaltion setting in. So up they all go.

There you go. Macro Economics 101.

 

Actually, I mean the interest rate of US and Europe
BTW, Just now ECB hike 1/4 but the market seems not satisfied.

 

dood you should go post this stuff on my forex forum. Nobody cares about this sjit here. Check my sig. I need posters.

 

I care, he should post it here.