Interest Rates and Forex

I am completely new to forex trading and have only been casually trading the stock market for 1/2 years. I am still in school studing Alevels in Economics, business studies… etc and still have limited knowledge, so please excuse mistakes or silly questions.

I was curious whether interest rate changes will have a significant effect on a currencys value. For example, on 10th June the Bank of England will be releasing their decision whether to increase or stick with the rate of 0.5%. If they do increase it to 1 or 1.5% will demand for the £ rise thus a higher exchange rate?

Would it rise significantly to profit from the GBP/USD for example?

I hope I expressed myself correctly and any help would be great! Thank yiu

Well if they do raise it to 1.5% there is going to be the mother of all spikes higher for the pound, but trying to predict such an event is rather difficult. When I started trading I was obsessed with trading the news. I would sit with my finger on the button, but in most cases there would be a move one way and then the other and I would get creamed! Thats whats called seat of your pants trading!

Anyway the answer to your question is 99% yes, but the forex market has a habit of doing the oposite to what everybody believes. If it stays the same but, the majority of the market expected a hike in rates then it could fall.

hope that helps, Im not that hot on fundamentals.
John

Heh, you can say that again.

The answer is yes, though how much depends on the degree to which the market was anticipating the move and how the market is positioned.

Like say, an expected move would have little impact.

basically, things only gets shaken up if things go ‘unplanned’