Interest rate and currency value?

Question

Hello all,

In the WSJ today, ECB raises rates to 4.25 %. However, it then states that "The euro fell in tandem, dropping to around $1.5695, its lowest level in a week. " I thought that the increase of interest rate will strengthen the currency. Therefore, shouldn't the euro to rise against the dollar instead of falling? Thank you.

Answer 1

There are other factors you need to factor in about the euro (besides the  American dollar) like the interest rates of India , China, and Japan. Then there is the good grief the oil question( hovering around 140 American dollars. Americans aren't traveling to Europe as much too this year.That is another story. India raised its interest rate recently too. So, that is why the euro slightly fell against the dollar.

Answer 2

Interest rate isn't is the only factor effecting the value of a given currency.  Currency value rises as interests rates rise, ceteris parabis, holding all other factors the same.