How does the interest rate affect the price of a currency?

It can generally be said that higher interest rates increase the value of its currency; As raising the interest attracts more foreign investments, which increases the demand for the currency, and on the contrary, lowering the interest reduces the attractiveness of investing in the currency, so the demand for the currency decreases and its value decreases, for example:

High interest rates in a country increase the value of the country's currency compared to currencies with low interest rates. Although the interest rate is one of the most important factors in determining the currency exchange rate, the exchange rate against other currencies is determined as a result of many interconnected factors. Among these factors:

Achieving a balance between interest rates and inflation

The political and economic stability of the state

Debt level

gross domestic product

Trade balance

The rate of demand for the country's products

Despite the importance of current interest rates, their expected direction is the most important for traders and economic analysts in determining the direction of the currency. If interest rates are currently high, this does not mean that investors expect them to remain high for a longer period of time. And vice versa.