Back to Glossary
General TradingF
Fisher Effect
The Fisher Effect is an economic theory stating that the nominal interest rate equals the real interest rate plus the expected inflation rate. It implies that changes in inflation expectations directly affect nominal interest rates and in turn influence currency values.
Example
“As inflation expectations rose from 2% to 4%, nominal bond yields followed suit per the Fisher Effect, and forex traders went long on the dollar anticipating higher real yields compared to other currencies.”