How does the interest rate trend affect the Forex market?

Last week the Forex market is affected by both U.S bonds auction and interest rate. Because the auction market is not vulgar, in addition with the decrease of the U.S bond rate, it will reduce the possibility of the increase of interest rate and loan, it will increase the value of the U.S dollar against other currencies. The Forex market will be affected by the retails sale, the manufacturing industry and the laborer data. According to the result announced by the Federal Reserve Department, the interest rate is to maintain unchanged which is expected by the market. Due to the close relationship of the interest rate and the Forex market, according to the INTEREST RATE PARITY (IRP), once the country increases the interest rate, its currency value will be increased. The reason is such, if the U.S deposit interest rate rises but the Japanese interest rate is invariable (but interest rate rise certainly does not affect stock market or any investment project repayment), the Forex traders know that the saving interest in U.S is much higher than the Japan saving interest, then the fund will be able to transfer from Japan pours into US, US dollar demand will increase but Japanese Yen demand will fall, therefore, US dollar will increase in value but the Japanese Yen will be relatively soft.

The increase of interest rate will often increase the currency value but the IRP limit is such, its assumes that investor will only focused on the bank deposit and the interest rate fluctuation will not affect other investment project repayments. Let's give an example, suppose that US FED increased its interest rate suddenly, according to will uncover the interest rate inevitably to follow the rise, this will increase the cost of investment for the investors to invest in the real estate, the investment demand will drop, the demand for U.S dollar and the Forex market will drop. Deduces, the enterprise financing interest rate rise, the company cost increases, the repayment drops, invests fund of and the exchange rate the U.S dollar will fall.