Nowhere does the lesson state adjusting interest rates has the [B][U]“biggest affect [/U][/B]on exchange rates” - question 5
In fact, massive buy / sell orders by Governments might have disastrous effects due to the severity and short term notice of the situation aligned with margin limits / stops.
<<<Meanwhile, central banks affect the forex market when they adjust interest rates to control inflation. By doing this, they can affect currency valuation. There are also instances when central banks intervene, either directly or verbally, in the forex market when they want to realign exchange rates. Sometimes, central banks think that their currency is priced too high or too low, so they start massive sell/buy operations to alter exchange rates.>>>
Central Bank’s monetary policy, change in short-term interest rates, etc leads the traders to decipher interest rate clues and results in market volatility. A Central Bank’s Governor Speech also have some hawking impact on the currency. Being an influenced person having authority to control short-term interest rates, governor speech can have more influence than any other person of the country.
The FOMC has voted to raise rates by 25bp, as expected, and signaled more rate hikes in the coming year, driving the U.S. dollar sharply higher against all the major currencies.