Zachary James_ Sanchez

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What role do central banks play in forex markets?

Central banks such as the Federal Reserve, ECB, or Bank of Japan influence forex primarily through monetary policy and interventions. By raising or lowering interest rates, they shape currency attractiveness. They may also directly buy or sell currencies to stabilize volatility or achieve competitiveness. For example, the Swiss National Bank famously intervened to cap CHF strength. Benefits: central banks anchor long-term currency trends and maintain financial stability. Risks: interventions may fail or distort markets, creating shocks. For traders, monitoring central bank speeches, minutes, and rate decisions is essential. Central banks remind us that forex is not a free-for-all—it is guided by policy decisions at the highest level.