YAhmed

This is my understanding of FX and Interest rates

Lower interest rates means low cost of borrowing which means cheaper goods which means higher exports, as exports rise and foreign currency inflows increase, local currency starts appreciating due to increased demand and spending power increases which leads to rising imports.

As imports increase - inflation increases as cost of input rises which would lead to higher interest rates to cure inflation

So lower interest rates will lead to appreciating currency – which increasing purchasing power and increase imports, which eventually cause inflation and increase interest rates and depreciate the currency. This is a repetitive cycle

Inflation is an important driver for the level of interest rates.