11.3

The Role of Central Banks in Forex

Central banks control monetary policies such as interest rates and are key in Forex fundamental analysis. All fundamental analysts must have a basic understanding of what central banks do, and what a central bank is trying to achieve regarding a currency at any time. This is because when a central bank is tightening policy, currencies tend to rise in value, and when policy is being loosened, the relevant currency tends to depreciate. Central banks control interest rates, which are of prime importance.

This lesson will explain the essentials of what a central bank does and provide a broad outline of how to interpret the periodic public policy guidance which they give.

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