How interest rates move currencies
By SendPay Business · · 2 min read
Interest rates are one of the biggest forces behind exchange rates. When a central bank such as the Bank of England changes its rate, or hints that it might, the value of its currency often moves.
Why higher rates can lift a currency
Higher interest rates can make holding a currency more attractive to investors looking for a return. More demand for the currency can push its value up against others.
Expectations matter most
Markets try to guess rate changes in advance, so much of the move can happen before an announcement. A rate rise that everyone expected may barely move the currency, while a surprise can move it sharply.
Other forces
Inflation, growth, politics and global risk all move currencies too, so interest rates never tell the whole story.
What it means for businesses
If you pay suppliers or get paid in other currencies, exchange rate moves change what you actually pay or receive. SendPay platforms include GBP, EUR and USD accounts and currency exchange under your own brand, powered by licensed partners.
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How do rate gaps set a forward rate?
Work out a forward rate from two interest rates.
Forward exchange rate calculator →Read next
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.