The influence of Central Bank interest rates on Forex market

For the analysis and forecasts on the Forex market, from amongst the technical and fundamental analysis, the fundamental analysis provides greater precision and allows for getting to the bottom of a market situation. From the processes that significantly affect the price dynamics of a market, one is the process of changes in interest rates through the central banks. In fact this process activates the market. Therefore in this article the association of interest rates with the exchange rates is discussed.
In this video below is excellent review about Central Bank interest rates:

Central banks have interest rates policies for every individual state. During their formation, chief instruments like bank rate and the base rate are employed for the financial market transactions. The macroeconomic indices’ assumptions determine the alterations in interest rates. Market is highly unpredictable during these unexpected changes. For this reason the forecast reports must be considered in a trader’s fundamental analysis in order to prevent getting into losses and gain benefits from existing market situations.
Fundamental Concept of Interest Rate
For the day time traders, realizing the role of interest rates in the fundamental analysis is very important. The level of intraday income is affected by the daily expected daytime trading profits. When the level is high, trader invests more money.
Nevertheless, it doesn’t always gets trader huge sums of money quickly. The science of fundamental analysis takes into account the market dynamics to predict fluctuations in currencies which results in profits or losses. For productive trading a trader has to look into this intellectual science to make intelligent decision.
How interest rate values are determined
The monetary policy is affected interest rates which itself is Central Bank’s leverage on the national currency. Central Bank issues short term interest rates to the commercial banks. Due to this control over interest rates, during inflation period, Central Banks influence the national currency by raising interests. This way the money volume decreases which leads in turning down the inflation. In decisions where the supply of money is advanced, the interest rates are lowered.
Foreseeing these Central Bank decisions are not possible. Due to this traders must carry out fundamental analysis. He/she should be aware of the economic indices (especially Employment rate, consumer spending Index, Consumer Price Index and Housing Price Index) to know about the Central Bank decisions regarding interest rates.
Using this data
The above mentioned indices depict the price dynamics and are used in fundamental analysis which traders must utilize for effective trade. These indices are the basic ones used by the Central Banks. When the indices show improvement, the interest rate level is either constant or shows partial rise and hence the economy grows. And when the indices show degradation in their values, the interest rate level goes down and the circulated money funds increase.
What to do when interest rate level changes
As the decisions controlling the interest rates are unexpected so the forecast can be faulty too. Therefore traders must be thorough in their fundamental analysis and be prepared for unexpected outcomes too. During unexpected declines in interest rates, the trader should know the there exists the option of selling currency in bulk to avoid huge losses.
Conclusion
Fundamental analysis of a Forex market comprises of a complex system of various indicators. Gaining all the knowledge of fundamental analysis is not possible, yet knowing its basic factors can aid in carrying out effective Forex trade. And interest rate is a basic factor.