Why should you follow releases from the central banks? Central banks have a mandate to their country to provide price stability and guard its economic well-being. It also is a surprise to you that the banks want investors to know what they are thinking of doing. Why? To, as far as possible, avoid disruptive large jumps in price. So, as an investor, if you follow what the central banks focus on, you can be one of the first to respond to the inevitable shift in currency price. Here is a brief rundown of four major banks with website links so you can read their releases as soon as they come out.
Central bank #1: US Federal Reserve (Fed)
The Federal Reserve is the most important central bank in the world, with the US dollar being the most traded currency in the world, comprising around 70% of all transactions on a given day. It is clear why the Federal Reserve is a very closely watched bank that influences all other central banks worldwide. The Federal Reserve has a group called the Federal Open Market Committee (known as the FOMC). This group comprises seven governors from the Fed Reserve Board and five presidents from the 12 district reserve banks. Jerome Powell, The Federal Reserve Chair, took office in February of this year. The Federal Reserve, or Fed as it is often abbreviated to, wants long-term price stability and growth. They meet to discuss monetary policy eight times a year.
On the US Federal Reserve website, you can download direct publications and forward guidance statements to see what the Federal Reserve is focusing on next.
Central Bank #2: European Central Bank (ECB)
The European Central Bank is the central bank of the 19 European Union countries which have adopted the euro. Their main task is to maintain price stability in the euro area and preserve the single currency’s purchasing power. The European Central Bank was established on June 1st, 1998 and is one of the world’s largest central banks.
The group that decides monetary policy within the ECB is the Governing Council. The council comprises six members from the executive board of the ECB, individual governors from each of the member country’s banks, and a President who provides the figurehead. The current President is Christine Lagarde.
The ECB likes to provide forward guidance to the markets to avoid price shocks to the euro area currency. They want to keep prices stable and maintain long-term growth. The ECB wants to maintain annual CPI growth below 2%; as an export-dependent economy, the ECB wants to limit the strength of their currency, as this could hurt their export market if the currency becomes too strong.
The monetary policy decision is explained in detail at a press conference held every six weeks. The President, assisted by the Vice-President, chairs the press conference.
You can download direct publications and forward guidance statements on the ECB website to see what the ECB focuses on next.
Central Bank #3: Bank of England (BOE)
The blueprint for modern central banks emerged from the founding of the Bank of England. The BOE was created in 1694 to help fund a war against France. It raised over one million pounds in its first days of service. The King and Queen of the time, William and Mary, were two of the original stockholders, and for many years, the bank was privately owned.
The original Royal Charter of 1694 declared that the bank was founded to ‘promote the public Good and Benefit of our People’. That is still its essential mandate today. It was in 1734 that the Bank of England moved to its iconic location in Threadneedle Street, where it still stands today.
The success of the Bank of England has meant that many countries worldwide copied the blueprint laid down by the Bank of England. Today, the Monetary Policy Committee runs the Bank of England, referred to as the MPC. This is a nine-member group comprising a Governor, two deputy Governors – two executive directors and four external experts. They want to maintain monetary and financial stability to maintain confidence in the currency. They meet monthly to discuss and adjust monthly policy.
The BOE website can be found here. Following the minutes of the MPC, traders can begin to get insights into the forward guidance of the world’s earliest central bank.
Central Bank #4: Bank of Canada (BOC)
The Bank of Canada, although run by the Canadian government, is ultimately owned by the people of Canada. In response to public criticism of the banks in Canada and how they responded to the Great Depression of the 1930s, the bank was formally formed in 1934 as a private corporation. However, within four years, it became a crown corporation, and the government took over it.
Unlike other government agencies, however, the bank’s governor and senior governor are appointed by the bank itself and not by the government. The Bank of Canada was built and has remained in Ottawa since its opening. As a non-commercial bank, it doesn’t offer banking services such as checking or savings accounts to normal consumers. However, it still contributes an average of $1.7 billion in profit each year to the Canadian government.
Its principal role is to promote the economic and financial welfare of Canada. The Bank of Canada’s monetary policy decisions are made by a majority vote by the governing council, consisting of the Governor, the Senior Deputy Governor and four Deputy Governors. They meet about eight times a year.
The BOC website can be found here and used to get insights into forward guidance from the bank.
Central Bank #5: Bank of Japan (BoJ)
The Bank of Japan is responsible for setting monetary policy for Japan. It is based in Tokyo. The board comprises a Governor, Haruhiko Kuroda, two deputy Governors, and six other members who make decisions on interest rates.
Japan is a very export-dependent economy, so it wants a weaker currency to help its export market. It works hard to prevent excessive strength in the Yen, and the Central Bank has occasionally entered the market to artificially weaken its currency by selling the Yen against the USD and EUR. This results in USD/JPY and EUR/JPY appreciation. The central bank wants price stability and becomes concerned when the market becomes too volatile.
The key issue facing the Bank of Japan now is curbing its deflationary economy as it works to achieve a 2% inflation target rate. Here is an example of the BOJ’s QE effect on the USD/JPY 2013.
The Bank of Japan’s market releases are on their website here.
Central bank #6: Swiss National Bank (SNB)
The Swiss National Bank has two head offices, one in Zurich and one in Bern. The basic governing principle of the bank is to pursue a reliable monetary policy to benefit the Swiss economy and the Swiss people. The Swiss National Bank’s management and executive body is the Governing Board.
The Governing Board has three members: a chairman, a vice chairman, and one other member. The present chairman is Thomas Jordan. Unlike other central banks, the board decides on interest rate ‘bands’ rather than specific rates. Like Japan and Europe, the Swiss economy is export-dependent, so the SNB wants a weaker currency. This was part of the reason the SNB peg was defended for so long at 1.2000 before it capitulated in 2015.
The SNB is more conservative with its rate hikes, but the factor working against the SNB is that its currency, the Swiss Franc, is considered a safe, stable currency and is bought up for that reason. The SNB meets relatively infrequently once every three months in March, June, September
and December. Knowing the SNB was going to defend the 1.2000 floor was a very profitable trade for a time. (and then it became a nightmare when the floor was removed).
The SNB’s website is here; you can download all their publications there.
Central Bank #7: Reserve Bank of Australia (RBA)
Their Monetary Policy consists of a Governor, currently Philip Lowe, a deputy Governor and six independent members appointed by the government. They meet 11 times yearly on the 1st Tuesday of every month, apart from January.
The Reserve Bank Board’s duty is to ensure that the bank’s monetary and banking policy is used to help the Australian population. This should be accomplished through consultation with the government, and so, in the Reserve Bank Board’s opinion, its powers are used to help with the stability of the currency of Australia; the maintenance of full employment in Australia, and the economic prosperity and welfare of the people of Australia.
In practice, the Reserve Bank concentrates on the first objective, which is to control inflation through monetary policy. The current objective is a policy of inflation targeting to maintain the annual inflation rate at between “2–3 percent, on average, over the cycle”.
The RBA’s website is here; you can source all their publications.
Central Bank #8: Reserve Bank of New Zealand (RBNZ)
The Reserve Bank of New Zealand has one person who is a central Bank Governor. That governor is ultimately responsible for deciding on the country’s interest rate. It has a target rate of between 1-3%. The Reserve Bank’s primary function, as defined by the Reserve Bank of New Zealand Act 1989, is to provide “stability in the general level of prices.”
The Reserve Bank is responsible for independent monetary policy management to maintain price stability. A Policy Target Agreement with the Minister of Finance determines the degree of price stability. It releases Monetary Policy statements four times a year in each Quarter. Failure to meet inflation targets can mean the dismissal of the governor.
The RBNZ’s website is here; you can download direct publications and forward guidance statements from it.
>> Next: Part 2 – Fundamental Analysis
FAQs About Central Banks
Does central banks control Forex?
Central banks do not directly control the Forex market, but they significantly influence it through monetary policies, adjustments to interest rates, and currency intervention. Their actions can affect currency values and Forex trading dynamics.
Which bank is best for Forex trading?
The best banks for Forex trading are JPMorgan Chase, Citibank, and Deutsche Bank. These banks are globally recognized for their robust trading platforms, extensive market research, and liquidity.
Can central banks participate in the money market?
Central banks participate in the money market through open market operations to manage liquidity, interest rates, and stabilize the banking system.
What bank does forex use?
Forex trading involves a diverse range of participants, including major banks such as HSBC, Barclays, and Goldman Sachs, who provide services and liquidity for Forex transactions.