How Interest Rates Effect Forex Currency Prices?

When interest rates go up or down, it can make currency prices change like a跷跷板 (a seesaw), one goes up, and the other goes down.

Imagine you have a piggy bank. If your bank says, "We're giving more candy for every dollar you save!", that's like having higher interest rates. People from all around want to bring their money to this super-friendly piggy bank. So, they trade their coins (currencies) to get into this special piggy bank. That makes the currency of this bank go up, like a balloon filling with air.

On the flip side, if your bank says, "We’re giving less candy now," people might take their money and go find a better piggy bank somewhere else. This means the value of that currency goes down, like a deflating balloon.

Let’s say you're trading with your friend from another town. If your town's bank is giving more candy (higher interest rates), your friend might want to trade their coins for yours so they can get more candy too. That makes your currency worth more, like a shiny new toy.

If the bank gives less candy, your friend might not want to trade anymore, and that means your currency isn’t as valuable. It’s like trading a crumpled-up paper for a brand-new one.