The rate set by a central bank at which commercial banks borrow overnight, the primary driver of currency valuation over the medium term.
Higher interest rates attract foreign capital seeking yield, increasing demand for the currency and typically pushing it higher. Rate differentials between countries drive carry trade flows and are reflected in forex swap rates.
Market participants trade central bank rate expectations - not just current rates - making forward guidance, inflation data (CPI), and employment data (NFP) crucial inputs for currency direction.