A period of weakness for Hong Kong's dollar may be coming to an end. The tightly controlled currency is showing signs of strength on the prospect of higher local interest rates.

Fiscal and commercial policy will affect the nominal exchange rate whenever it is real interest rate by the risk premium minus the expected rate of increase in  17 Nov 2015 concerning the dollar's inevitable rise as US interest rates increase is For currency traders, therefore, the last two cycles of Fed tightening  While an increase in interest rates makes a currency expensive, changes in cash reserve and statutory liquidity ratios increase or decrease the quantity of  Thus, increasing interest rates has two opposite effects: the first is to increase increasing interest rates strengthens the currency, but after an endogenously 

In economic theory, if the interest rates in one country increase, then the currency value of that country will increase as a reaction. If the interest rates decrease, 

The real interest rate is nominal interest rates minus inflation. Thus if interest rates rose from 5% to 6% but inflation increased from 2% to 5.5 %. This actually represents a cut in real interest rates from 3% (5-2) to 0.5% (6-5.5) Thus in this circumstance the rise in nominal interest rates actually represents expansionary monetary policy. In simple terms, lower domestic interest rates depreciate the currency. Economic life, however, is never so simple. Low rates can, for specific reasons, appreciate the currency -- that is, cause it to increase in value. This is the case both for domestic and foreign interest rates. Since low interest rates generally indicate a weak dollar, the increase in interest rates can strengthen the dollar. High interest rates can attract foreign investors looking for high-yield returns on their investments. This causes more demand for the dollar, which increases its value. Interest rates are far from the only factor that affects the value of a currency, including the US dollar. For example, the strength of exports and the level of imports can have a significant effect on the value of a currency. The US dollar would be stronger if the trade balance were not so heavily titled toward imports.

But what actually causes this demand to rise and fall? Lower interest rates, in turn, also tend to lower the value of a currency – because investors get low 

13 Feb 2018 of stronger-than-expected inflation data and an increase in interest-rate expectations, raising the possibility that the currency is in a period of 

Thus, U.S. interest rates and exchange rates tend to rise and fall in tandem. The Fed’s interest rate decisions also influence the interest rate decisions of other central banks, but in the opposite direction. When the Fed raises rates, strengthening the dollar, the currency exchange rates of other countries tend to weaken.

6 Sep 2018 Loose monetary policies should increase the amount of money sloshing around should also weaken its currency's value versus those of other countries. down US interest rates was partially behind the dollar's 2014 surge,  9 Dec 2015 The Federal Reserve is expected to raise rates for the first time in nine Arizona or parts of California, the interest rate increase means more When interest rates rise in the US, the dollar often buys more foreign currency. 4 Oct 2018 The Reserve Bank of India intervenes in the currency market to support the rupee as a weak domestic unit can increase a country's import bill. RBI can raise the repo rate, which leads to a rise in interest rates, bond yields  19 Aug 2016 The U.S. dollar strengthens against major world currencies The Federal Reserve raised the interest rate by a quarter of a percent in  But what actually causes this demand to rise and fall? Lower interest rates, in turn, also tend to lower the value of a currency – because investors get low 

A period of weakness for Hong Kong's dollar may be coming to an end. The tightly controlled currency is showing signs of strength on the prospect of higher local interest rates.

When the economy is weak, inflation falls since there's less demand for goods to push up prices. Conversely, when the economy is strong, rising wages increase spending, which can spur higher prices. Keeping inflation at a growth rate of 2% helps the economy grow at a steady pace and allow wages to naturally rise. The Guardian - Back to home. What a US interest rate rise really means for the dollar T he US Federal Reserve is almost certain to start raising interest rates when the policy-setting

13 Feb 2018 of stronger-than-expected inflation data and an increase in interest-rate expectations, raising the possibility that the currency is in a period of  30 May 2018 Indonesia's central bank raised its benchmark interest rate for the second Indonesia's currency, the rupiah, strengthened 0.1% against the  4 Oct 2018 The Reserve Bank of India intervenes in the currency market to support the rupee as a weak domestic unit can increase a country's import bill. RBI can raise the repo rate, which leads to a rise in interest rates, bond yields  6 Sep 2018 Loose monetary policies should increase the amount of money sloshing around should also weaken its currency's value versus those of other countries. down US interest rates was partially behind the dollar's 2014 surge,  9 Dec 2015 The Federal Reserve is expected to raise rates for the first time in nine Arizona or parts of California, the interest rate increase means more When interest rates rise in the US, the dollar often buys more foreign currency. High interest-rate policy can be construed as raising i in this equation to increase KAp, exerting an appreciating pressure on the home currency. This strategy