Central Bank Intervention in the Foreign Exchange Market

: This is usually what people mean when they refer to central bank intervention. It involves the central bank buying and selling both foreign and local currency to drive the exchange rate to a targeted level. It is the pure size of these transactions that move the market.: this is an example of indirect FX intervention whereby a central bank mentions that it may intervene in the market if the local currency reaches a certain undesirable level.

: This is a combination of jawboning and operational intervention and is most effective when multiple central banks voice the same concerns over exchange rates. If a number of central banks increase their jawboning efforts, it is likely that one of them actually conducts operational intervention to drive the exchange rate in the desired direction.

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