Predicting The Future Of Forex Trends With Central Banks

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Hello and Welcome to the ditto educational series that will provide you with the skills you need to become a forex trader!

Today we will be discussing Central banks and how they affect the forex markets, central banks main objective is to maintain inflation in the interest of sustainable economic growth and by doing so contribute to the overall stability of the financial system.

Central Banks are independent institutions utilized by nations around the world to assist in managing their commercial banking industry, set central bank interest rates promote financial stability throughout the country.

When central banks need to preserve order they will intervene in financial markets in line with the defined Monetary Policy Framework. The implementation of this policy is widely monitored and anticipated by forex traders seeking to take advantage of the volatility that will ensue because of it.

We will now look at the roles of the major central banks and how their policies affect the global forex market.

Open market operations

Open market operations or (OMO) describes the process whereby governments buy and sell government bonds in the open market, with the aim of expanding or contracting the amount of money in the banking system. The purpose of this would be to either stimulate or inhibit the growth of economy to maintain balance.

The central bank rate

The central bank rate, often referred to as the federal funds rate is set by the monetary policy committee with the intention of increasing or decreasing economic activity. A economy that grows to quickly can lead to inflation and a central banks aim is generally to preserve the economic equilibrium.

Central banks can also act as a lender of last resort. If a government has a modest debt to GDP ratio and can not raise money through a bond auction, the central bank can lend money to the ....

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