HOW DOES THE FED PUSH THE MARKET?
Hello everyone!
Today I want to discuss with you a very important and interesting topic.
This topic relates to fundamental analysis and it will be useful to every trader.
Let's go!
The US Dollar and the whole world
As we know, after the Second World War, the dollar became the main reserve currency.
The US economy has grown and become the largest on the planet.
The impact of the US dollar on the world seems to have no boundaries.
All central banks of all countries are forced to hold large amounts of funds in dollars.
Because it is the dollar that makes it possible to make monetary transactions between countries without any problems.
Thanks to the growing US economy, it is profitable for countries to invest in US bonds and in American companies.
Based on the above, the whole world depends on the US Dollar.
The Fed and the interest rate
The Fed has one of the most important instruments of influence on the economy – the interest rate.
The whole world is watching what the Fed decides on the interest rate.
Why?
Everything is simple.
The interest rate is the interest at which loans are issued to banks.
If the interest rate is high, it is expensive to take out a loan and therefore there are fewer loans.
If the interest rate is low, it is inexpensive to take loans, and therefore companies happily take cheap loans.
How does this affect the market?
As you know, companies need funds for growth, one of the sources of funds is credit.
If the interest rate is low, it is easy for companies to take out loans and direct funds for development – the company is growing.
When companies grow, the stock market grows, people invest in stocks, the market grows even more.
On the other hand, if the interest rate is high, it is expensive to take out a loan and companies do not grow because of this, people do not invest in them.
And where to invest in such moments?
In bonds.
The lower the interest rate, the higher the yield on the bonds.
Remember this.
People still need to invest their funds somewhere, and they choose a less dangerous option than stocks, which will help save their funds, and at this moment many choose bonds, the demand for them has lost, the yield is growing.
Interest rate data pushes the market, forces huge amounts of funds to flow from bonds to stocks, big banks take loans or vice versa, all this affects the American economy, on which the whole world depends.
That is why it is so important to monitor the Fed data, understand how they affect the market and the ability to correctly interpret the data can ultimately bring you a lot of profit.
Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩💻
Today I want to discuss with you a very important and interesting topic.
This topic relates to fundamental analysis and it will be useful to every trader.
Let's go!
The US Dollar and the whole world
As we know, after the Second World War, the dollar became the main reserve currency.
The US economy has grown and become the largest on the planet.
The impact of the US dollar on the world seems to have no boundaries.
All central banks of all countries are forced to hold large amounts of funds in dollars.
Because it is the dollar that makes it possible to make monetary transactions between countries without any problems.
Thanks to the growing US economy, it is profitable for countries to invest in US bonds and in American companies.
Based on the above, the whole world depends on the US Dollar.
The Fed and the interest rate
The Fed has one of the most important instruments of influence on the economy – the interest rate.
The whole world is watching what the Fed decides on the interest rate.
Why?
Everything is simple.
The interest rate is the interest at which loans are issued to banks.
If the interest rate is high, it is expensive to take out a loan and therefore there are fewer loans.
If the interest rate is low, it is inexpensive to take loans, and therefore companies happily take cheap loans.
How does this affect the market?
As you know, companies need funds for growth, one of the sources of funds is credit.
If the interest rate is low, it is easy for companies to take out loans and direct funds for development – the company is growing.
When companies grow, the stock market grows, people invest in stocks, the market grows even more.
On the other hand, if the interest rate is high, it is expensive to take out a loan and companies do not grow because of this, people do not invest in them.
And where to invest in such moments?
In bonds.
The lower the interest rate, the higher the yield on the bonds.
Remember this.
People still need to invest their funds somewhere, and they choose a less dangerous option than stocks, which will help save their funds, and at this moment many choose bonds, the demand for them has lost, the yield is growing.
Interest rate data pushes the market, forces huge amounts of funds to flow from bonds to stocks, big banks take loans or vice versa, all this affects the American economy, on which the whole world depends.
That is why it is so important to monitor the Fed data, understand how they affect the market and the ability to correctly interpret the data can ultimately bring you a lot of profit.
Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩💻
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