This article focuses on the roles of the major central banks and how their policies affect the global forex market.Central Banks are independent institutions utilized by nations around the world to assist in managing their commercial banking industry, set central bank interest rates and promote financial stability throughout the country.
This effect of central bank interest rates is depicted below with the commercial banks charging a higher rate to individuals than the rate they can secure with the central bank. Central banks will define the specific percentage of all depositors’ funds that banks are required to set aside, and should the bank fall short of this, it can borrow from the central bank at the overnight rate, which is based on the annual central bank interest rate.
Movements in central bank interest rates present traders with opportunities to trade based on the interest rate differential between two country’s currencies via aData releases have the ability to make significant moves in the FX market but with increased volatility, it is important toLeveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors.
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