What impact do interest rate changes have on financial markets?

Interest rate changes can significantly influence various financial markets, including Forex, commodities, and equities. Generally, when a central bank raises interest rates, borrowing costs increase, which can dampen consumer spending and business investment. This can lead to a stronger currency as higher rates may attract foreign capital. Conversely, lower interest rates typically stimulate economic growth, making borrowing cheaper and potentially weakening the currency.

In commodities markets, higher interest rates might lead to decreased demand, impacting prices. Similarly, equities may react negatively to rate hikes due to increased discount rates applied to future earnings, which can lower stock valuations. Conversely, lower rates often provide a more favorable environment for stock prices, encouraging investment.