How do central banks affect the forex market? - Part 2

08 August 2009 @ 12:18 am EDT

Central banks and their management teams clearly have contradictory mandates to balance low inflation with stable growth and currency stability. They have very few tools to do that job with besides interest rates. One of the additional tools a central bank has access to are its foreign currency reserves. Most central banks use these reserves to back their currency and other liabilities and some will use those reserve accounts to interfere in the FX market.

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