• Online Forex trading Community

Forex trading articles

The Central Banks' Influence On Forex Trading?

A Central Bank is a financial body which has the power to control over the country’s monetary policy, and it usually has several orders including:

  • 1. issuing national currency
  • 2. maintaining the currency’s value
  • 3. controls the credit supply
  • 4. acts as a lender of last resort to other banks, which ensures financial system stability
  • 5. acting as government’s banker

The purpose and aim of this bank, may be or not be determining itself for the government. In speculation, independent central banks will make sure that political influence may not at any point affect the policy of the national banks. However even with the so-called independent central banks it is not always an assurance in their particular case.

Central banks which deal with their countries monetary policies, comprise of issuing a certain currency which most world currencies have official sanctions for such currencies that are not backed by silver or gold, at the same time they are maintaining the country’s foreign exchange and gold reserves, which manage the cost of credit by setting interest rates and managing money supply. Central banks which forces a monetary policy which is used in general for influencing the economic activity that avoid decline, facilitate economy growth and others which may also control inflation. Some examples of the well-known banks are the US Federal Reserve, Bank of England, Bank of Canada, Reserve Bank of Australia, and the European Central Bank. It is enough for these banks to provide some rumor or expectations in order to make the currency stable but to the countries with an unstable currency policy it is possible to apply such methods as an aggressive interference. Yet, it does not always let these banks achieve their goals. Any of these banks can be easily defeated by the combination of market resources.

Since central banks generally provide security for their foreign exchange rate currencies considerable jumps, this cause dilemma for economy as well as monitors the generally called currency regulation or the export and import process balances. Exchange markets accept mandatory and direct demands from these banks. It can have either an effect on the market by direct currency pressure which is the straight line affection or varying the interest rates and money assets which is called indirect affection. Central banks, reserve bank or monetary authority is a special body responsible for monetary policy of a country or a group of member states. It has a sole responsibility to maintain the stability of the money supply and the national currency of a certain country. One main duty of these banks is also to control loan interest rates that are subsidized, which also acts as a bailout or lender of last resort to the banking sector during the times of financial crisis which private banks often being essential to the national financial system.

Forex markets are influenced by national central banks as well as of inflation and interest rates, as the money support is under control of the latter. Central banks also have their own significant foreign exchange reserves which they can use for the purpose of economy stabilization. Stock exchange in currency may be considered as the reality for transitivity of an economy.

Main Menu