Forex Fundamental Analysis

Importance of ‘Lending Rate’ News Announcement on the Forex market


The ease with which money can be obtained within a country primarily drives the business sector and consumer spending. Consumer Spending and Businesses mostly make up the GDP of a country. Hence, understanding Lending Rates and its impact on the economy can help us build our fundamental analysis better.

What is Lending Rate?

Lending Rate: The rate at which a bank or a financial institution charges its customers for lending money. It is the fee that is to be paid by the customer for the borrowed money. Bank Lending Rate, in general, is the Bank Prime Rate.

Bank Prime Rate: It is the rate of interest that banks charge their most creditworthy customers. It is the lowest interest rate at which banks generally gives out loans. On the receiving end usually are large corporations with a good track record with the concerned bank. Generally, the loans taken are also huge.

Other forms of loans like house mortgage, vehicle loans, or personal loans, are all either partly or wholly based on the prime rate. It is also important to note that the Central Bank’s interest rates set the bank lending rate. For the United States, the Federal Reserve’s, the Federal Open Market Committee (FOMC) determines the target fed funds rate.  Fed funds rate will ultimately influence all the Bank lending rates on account of competition.

How can the Lending Rate numbers be used for analysis?

Banks and financial institutions are the primary source of money for businesses and consumers across the country. Hence, Bank Lending Rates can mainly drive business direction and influence consumer spending.

The Central Banks will influence the interest rates through their open-market operations in the inter-bank market by purchasing or selling bonds. When Central Banks buy bonds, they inject money into the economy, thereby effectively inducing inflation. It is popularly referred to as the “Dovish” approach. When the Central Bank sells bonds, it is effectively withdrawing money from the economy, making money scarce and costly to borrow. It is popularly referred to as the “Hawkish” approach.

When the Central Bank wants to deflate the economy, they will sell bonds, and when they decide to inflate, they will effectively buy bonds. In the private sector, Consumer Spending makes up about two-thirds of the United States’ GDP, and the rest is mostly by the business sector. The ease with which money is made available to people and business organisations affects the economy in a big way.

When lending rates are low, businesses can procure loans easily; they can run, maintain, and expand their current businesses. On the other hand, when the lending rates are high, only the high-end companies can procure loans. Meanwhile the rest of the business struggle to stay afloat in the deflationary environment. Businesses would be forced to keep their expansionary plans on halt when loan rates are high.

Consumers are also encouraged to take on loans when the rates are low. It promotes consumer spending, which, in turn, boosts local business. On the other hand, when interest rates are high, consumers would tend to save more spend less. When spending is less, businesses also slow down, especially sectors that do business with non-essentials like entertainment, luxury, or recreation.

On the international scale, the lending rates and deposit rates of banks from different countries also drive the flow of speculative money from international investors. When the lending rate in one country’s bank is lower than the deposit rate in another country’s bank, investors can generate revenue through a “carry.” Investors will borrow from the low-yielding currency bank and deposit in the high-yielding currency bank. The difference between these two rates is the margin they make.

The above plot shows the actual plot between the interest rates differential (AUS IR – USA IR) and the AUD USD exchange rate. As we can see, whenever the difference between the interest rates rises in favour of AUD, the exchange rate tends to follow. There is a strong correlation between both in the long run.

Since the Central Bank’s interest rates primarily determine all the lending rates (all types), investors generally calculate interest rate differentials by subtracting interest rates of two countries to see potential “carry” opportunities. Hence, when low-interest rates are prevalent, currencies lose value, on account of inflation and also outflow of money into other countries where deposit rates are higher.

Overall, the lending rates and deposit rates together move the currency markets in favour of the country’s currency, having higher deposit rates.

 Impact on Currency

The underlying Central Bank interest rates influence lending rates. The market is more sensitive to Central Bank interest rate changes than the bank lending rates. The lending rates of banks are also not as immediate as the Central Bank’s interest rate changes. Hence, although lending rates impact the economy, its effects are only apparent after about 10-12 months.

Hence, Lending rates are a low-medium impact indicator in the currency markets, as the leading indicator Central Bank interest rates take precedence over bank lending and deposit rates.

Economic Reports

The lending rates of banks can be found from the respective banks from which we would want to borrow money. For the United States, the Federal Reserve publishes Monday to Friday the daily Interest Rates in its H.15 report at 4:15 PM on its official website. Weekly, Monthly, Semi-annual, and Annual rates of the same are also available. The average Bank Prime Rates are also available in the same report.

Sources of Lending Rate

The United States Fed Fund Rates are available here. The prim Bank Loan Rate is available in a more consolidated and illustrative way for our analysis in the St. Louis FRED website. Consolidated Bank Lending Interest Rates of different countries are available here.

How Lending Rates Affects Price Charts

The lending rates can either create expansionary or contractionary effects within an economy.  Let’s now have a look at how it affects the price action in the forex market. In the US, lending rates entirely depend on the Federal Reserve’s Fund Rate. On March 4, 2020, the lending rates were cut from 4.75% to 4.25%. This cut coincided with the Federal Reserves’ interest rate cut from 1.75% to 1.25% on March 3.

On March 16, 2020, the lending rates were reduced from 4.25% to 3.25%. This cut coincided with the Federal Reserves’ interest rate cut from 1.25% to 0.25% on March 15.

For this reason, the lending rates rarely affect the price action in the forex markets.

In the US, the Bank Prime rate is published every weekday at 4.15 PM ET. Below is a screengrab from the US Federal Reserve showing the latest bank prime rates.

As can be seen, the rate has remained at 3.25% from March 16, 2020. For this analysis, we will consider if the change on March 16, 4.15 PM ET from 4.25% to 3.25% had any effect on the price action of selected currency pairs.

EUR/USD: Before Lending Rate Change on March 16, 2020, 
Just Before 4.15 PM ET

Between 10.00 AM and 4.00 PM ET, the EUR/USD pair was on a neutral trend. This neutral trend is shown on the 15-minute chart above with bullish and bearish candles forming slightly above the flattening 20-period Moving Average.

EUR/USD: After Lending Rate Change on March 16, 
2020, 4.15 PM ET

As shown by the chart above, the EUR/USD pair formed a slightly bullish 15-minute candle after the daily release of the lending rates. As earlier mentioned, the release of the lending rates is not expected to have any significant impact on the price action. This sentiment is further supported by the lack of change in the prevailing trend after the news release since the pair continued trading on a neutral stance.

GBP/USD: Before Lending Rate Change on March 16, 2020, 
Just Before 4.15 PM ET

The GBP/USD pair showed a similar neutral trading pattern as the EUR/USD pair between 1.00 PM and 4.00 PM ET. This pattern can be seen on the above 15-minute chart with candles forming on the flat 20-period Moving Average.

GBP/USD: After Lending Rate Change on March 16, 
2020, 4.15 PM ET

After the news release, the pair formed a slightly bearish 15-minute candle but continued trading in the earlier neutral trend.

NZD/USD: Before Lending Rate Change on March 16, 2020, 
Just Before 4.15 PM ET

NZD/USD: After Lending Rate Change on March 16, 
2020, 4.15 PM ET

Unlike the EUR/USD and the GBP/USD pairs, the NZD/USD pair had a steady downtrend between 12.15 PM and 4.00 PM ET. After the release of the daily lending rates, the pair formed a bullish 15-minute candle, but just like the other pairs, the news was not significant enough to change the prevailing market trend.

As we noticed earlier, the lending rates move in tandem with the Federal funds rate. Since the lending rates have always remained unchanged in the market and forex traders have anticipated this, hence the lack of volatility accompanying the news release.

Crypto Guides

The Basics of Cryptocurrency Lending And Staking


Crypto trading has become one of the hot topics of the market. With the security of cryptography and interesting rates of the currency, everyone wants to get their share of the pie. That is why more people are looking for opportunities to generate some income with the help of cryptocurrency. Two best methods you can opt for making money through cryptocurrency are lending and staking. Let’s dive into the two techniques and see which one can be beneficial for you.

Crypto Lending

The concept of crypto lending can be understood as a simple cryptocurrency collateralized loan. A borrower can utilize their crypto assets for getting a stablecoin or fiat loan. In exchange for this, the lender gets a fixed (agreed-upon) interest rate. Alternatively, the borrower can also use their stablecoins as collateral for borrowing crypto assets.

The whole process raises the cryptocurrency’s productivity by reallocating it to people who are in immediate need (borrowers) from those who are not (lenders). That is why crypto lending proves to be a powerful financial primitive in the crypto market that traditionally had only two options: trade and HODL.

The only drawback to crypto lending is that you got to have some capital or assets at your disposal to get the loan. That means they are over collateralized and don’t offer all advantages of true credit.

Crypto Staking

You may find people talking about staking as just holding some crypto and earning rewards in exchange for it. However, there is more to this concept. Staking involves the Proof-of-Stake mechanism, where new blocks get produced and verified through staking.

So unlike mining, you don’t need special computers to solve problems here. But you do need to follow some conditions to become a new block validator, such as:

  • Your cryptocurrency wallet must hold a minimum amount.
  • Your wallet must remain online throughout the day and every day.
  • Your wallet should support crypto staking.

Other than these, different blockchains may apply different rules. So you need to check with the blockchain for how you can stake. Plus, staking is not supported by every cryptocurrency, and you have to choose only from the provided options.

In exchange for holding these staking processes, you get a fixed percentage of rewards per year. You can also opt for a pool, where multiple holders keep their coins together. This increases the overall chances of validating a block and getting higher revenues.

Lending vs. Staking: Which One To Opt?

It would be wrong to state that either of them is better than the other. They both have pros and cons. Your choice majorly depends on the type of investor you are. In case you need instant stable coins with the help of assets, lending would be more beneficial for you. On the other hand, you can opt for staking if you want to generate a significant amount of money by holding the crypto coins in your wallet.

The crucial point here is to keep an eye on the blockchain in which you are investing. You need to look through all the aspects before putting money in a particular investment method.

Crypto Videos

Crypto Lending The Superior Way Of HODLing Part 5 OF 5

Crypto Lending – A word to the lenders (part 5/5)

There are many great lending platforms that can offer great returns and make this way of investing far superior to just regular holding. However, the old saying still remains true: if you are not the owner of your private keys, you are not the owner of your cryptocurrencies.
This saying holds true for crypto lending platforms as well. The concept of lending cryptocurrencies is more than outstanding and will surely flourish. However, one must first worry about security rather than be hyped up about potential gains.

A platform might have the best crypto interest rates but fail in some other departments, such as the safety and security of the customers’ assets.

In January 2018, a cryptocurrency lending platform called Davor Coin made an announcement: “Lend us your funds, and you’ll have the chance to win a prize of $1,000,000.” People from all around the globe got overly excited and started lending their money to Davor Coin. Just a week later, the platform received a cease-and-desist letter from the state of Texas.
Davor Coin’s lending platform scheme worked only as long as values kept rising. However, when cryptocurrency values went down, Davor Coin crashed. The platforms such as this one that did not crash were fined by the SEC or given a cease-and-desist letter from the same SEC regulators, which meant they were under investigation for securities fraud.

Bitconnect is yet another great example of such platforms, as is Lendconnect. Both of these companies offered a RoI that was ‘too good to be true’; they indeed were too good to be true. These ‘great opportunities’ are also called Ponzi schemes.

Bitconnect offered a 1% return per day compounded. This certainly couldn’t go on forever. Lendconnect went even further and offered up to a 164% return on investment! What’s shocking is not the attempts of scams such as these, but the number of people that fell for it.

Crypto Lending – What does the future hold?

As they say, money makes the world go round. The same goes for cryptocurrencies as well. It’s evident that some cryptocurrencies are slowly but surely transitioning into crypto assets.
To learn the basics about how to earn interest in Bitcoin and other cryptocurrencies is getting simpler and easier by the day. As soon as these lending platforms find their audience as well as their place on the market, we will witness so far unseen financial tools working together to open the world of finance to everyone, including the unbanked.
Lending your cryptocurrencies is becoming safer, easier, and an overall great way to earn passive income. However, for more safety and better returns, you will have to stick to the best and safest crypto lending platforms that offer good crypto interest rates while still being insured for your safety.