While stock market investors are cursing the Fed, forex traders have never been happier.<\/p>\n
It turns out that the Fed is little more than a drug dealer.<\/p>\n
And over the last 14 years they’ve been pushing the most addictive drug of all – money.<\/p>\n
The Fed’s answer to the 2008 Global Financial Crisis (GFC) was to drop interest rates to nearly 0%.<\/p>\n
At the same time, the central bank printed trillions of new dollars that would circulate through the system.<\/p>\n
This “one-two punch” was supposed to get the economy off life support. And it worked wonders…<\/p>\n
Businesses quickly ramped up hiring, and the unemployment rate dropped from a peak of almost 10% in 2010 to a low of 3.67% by 2019.<\/p>\n
We all know what happened next… the world shut down as COVID-19 spread like wildfire…<\/p>\n
The Fed responded by doubling down on its 2008-era policies. They dropped rates to rock-bottom levels once again and printed more money than ever before.<\/p>\n
In doing so, they set the stage for the forex market to make its big comeback.<\/p>\n
That’s why this is the best trading environment I’ve ever seen for forex.<\/p>\n
There are big moves in all the major currencies almost every week. That means countless opportunities to make great returns.<\/p>\n
You see, interest rates are crucially important to forex traders.<\/p>\n
More specifically, forex traders are happiest when there are big differences between the interest rates of the major currencies.<\/p>\n
In a post-2008 world, with interest rates so low for all the major currencies, forex trading virtually died off. Many forex-focused hedge funds closed shop and moved to other asset classes.<\/p>\n
That’s because it’s easier for central banks to lower interest rates than it is to raise them.<\/p>\n
And virtually every major central bank dropped their interest rates to near 0% after the GFC – just like in the aftermath of the pandemic crash.<\/p>\n
When every currency’s interest rate is at the same level, there’s very little incentive for traders to want to own one currency over another.<\/p>\n
But when one currency has a relatively high interest rate, and another currency has a very low interest rate, that’s when forex traders get excited.<\/p>\n
It’s exactly what’s going on right now. To fight surging inflation, central banks are realizing that they must change course.<\/p>\n
The days of cheap money at ultra-low interest rates are likely gone for a very long time.<\/p>\n
A big problem, however, is that not all central banks can simply raise their interest rates as quickly as some others.<\/p>\n