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Fundamental Question

  • #1
  • First Post: Mar 22, 2007 1:04pm Mar 22, 2007 1:04pm
Just curious about the actual influence of economic reports.

So let's say a report says a certain country (say US) is pretty strong.
How does this change the interest rate (central bank) and why do hedge funds invest in strong countries - do strong countries give more interest rate?

I thought that weaker countries gave out more interest - am I missing something here?
  • #2
  • Mar 22, 2007 1:21pm Mar 22, 2007 1:21pm
Quoting Skyhr
Just curious about the actual influence of economic reports.

So let's say a report says a certain country (say US) is pretty strong.
How does this change the interest rate (central bank) and why do hedge funds invest in strong countries - do strong countries give more interest rate?

I thought that weaker countries gave out more interest - am I missing something here?
I am not a fundie but i'll try to answer. The way i see most reports are influencing the prices only because of the influence that those reports might have on future interest rates. So if an economic report suggests that the future interest rates will be hiked that will be bullish for that particular currency. The stronger the relationship between the report and the interest reate the more influence the report will have on prices. Now the reason a high interest interest rate is positive for that countries currency is because you could barrow a currency with a lower interest rate and invest it in one with a higher interest rate and profit from the difference (ie carry trade). This relationships are of course more complex than what i am describing but i believe that is the basic principle.
HTH
Stubbornly persistent
  • #3
  • Last Post: Mar 23, 2007 3:16am Mar 23, 2007 3:16am
Quoting sergiu
I am not a fundie but i'll try to answer. The way i see most reports are influencing the prices only because of the influence that those reports might have on future interest rates. So if an economic report suggests that the future interest rates will be hiked that will be bullish for that particular currency. The stronger the relationship between the report and the interest reate the more influence the report will have on prices. Now the reason a high interest interest rate is positive for that countries currency is because you could barrow a currency with a lower interest rate and invest it in one with a higher interest rate and profit from the difference (ie carry trade). This relationships are of course more complex than what i am describing but i believe that is the basic principle.
HTH

Ahhhhh... I see. Right the "high" interest rate was referring to the borrowing rate. I'm guessing a stronger economy can afford to put higher interest rates then.
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