Paul P26_ Jenkins

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What is quantitative easing (QE) and how does it affect forex?

Quantitative easing is when central banks buy bonds or other assets to inject liquidity into the economy. QE lowers yields, weakens the domestic currency, and stimulates risk appetite. Example: the Fed’s QE after 2008 weakened the dollar initially, while Japan’s QE has long pressured the yen. However, reactions vary—sometimes QE boosts currencies if markets believe it stabilizes growth. Institutions track QE announcements, central bank balance sheets, and forward guidance. Retail traders should understand QE’s dual effects: immediate currency weakness, but longer-term impact depends on relative global policies. Risks: QE creates asset bubbles and distorts traditional correlations. In forex, QE explains prolonged weak-yield currency trends and provides macro context for major moves.