Central bank

What is a central bankWhat is a central bank? A central bank is an institution r... More?

A central bank is an institution responsible for supervising the monetary system of a nation or a group of nations. Their usual duties are to issue currency, regulate the moneyMoney is a generally accepted medium of exchange to buy and... More supply and control interest rates.

Their decisions affect the financial markets in general and the currency markets in particular. Sometimes, they also supervise the commercial banking system in their country.

Some of the most important central banks are:

• Federal Reserve Bank (US)
• European Central Bank
• Bank of Japan
• Bank of England
• Bank of Canada
• Reserve Bank of Australia
• Reserve Bank of New Zealand

Trading and central banks

Monitoring announcements and actions of central banks is key when you employ fundamental analysis.

Central banks are key drivers behind the movement in the currencyWhat is currency? Currencies are the generally accepted medi... More markets because they are managing the money supply. An excess money supply can lead to inflation and a devalued currency.

If, however, inflation levels are too high, a central bank may adopt a restrictive monetary policyMonetary policy is the process by which the monetary author... More. If the Bank of England were to limit the money supply, for example, it would increase the value of the British pound. This could have an impact on currency pairs containing the pound, such as the priceWhat are value stocks? A value company is a company that app... More of the GBP/USD increasing.

News releases and reports on a central bank’s decisions can create high volatility in the currency markets, especially if there is a difference in the actual result and the expected result.

If you are a forex traderWhat is a trader? A trader is a person who buys and sells... More, we recommend to read more about the impact of fundamentals on currencies: