eli5: can a currency value drop if interest rates spike up?
In: Economics
Yes. See Black Wednesday. The Bank of England repeatedly raised interest rates to encourage people to buy GBP but the short sellers still won. It’s all about supply and demand.
Anything’s possible because there are so many inputs into an economy, but typically an interest rate spike would cause currency to strengthen as more investors want to save or buy bonds in that currency. If a US T-bill was paying 3% and now the rate goes to $6%, you’d see a flood of investors wanting that higher payout and they may dump Euros or Yen, etc. to get dollars for doing so.
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