In order to do forex trading successfully, traders need to be extraordinarily informative and knowledgeable. They need to know what is going on in the forex market and the reason for the major occurrences. Thus, a great number of traders keep a watchful eye on the policies of major central banks because they are tightly related to the ups and downs of the forex market. The following are some major banks that their policies are worthy noticing in forex trading.
1. U.S. Federal Reserve
The U.S. Federal Reserve is regarded as one of the most influential central banks all over the world. We all know that the USD is one of the most traded currencies in forex trading, which has a great influence on the whole forex market. Thus, the role of the U.S. Federal Reserve is unparalleled in forex trading and the policies of it can create profound influence on the forex market. A great number of experienced traders choose to pay extra attention to the movements of the Federal Open Market Committee, which is a group within the U.S. Federal Reserve. This group has a say in the policies of interest rate in forex trading.
2. Bank of England
Another major central bank that traders need to know in order to do forex trading successfully is Bank of England, the bank for the United Kingdom. It is the UK’s equivalent of the Federal Reserve in the United States. The Bank of England has a wide range of responsibilities; for example, it acts as the government’s bank; it issues currency and supervises monetary policies. Traders who want to do forex trading successfully should keep a watchful eye on the policies of this bank. The Bank of England tries to keep prices stable and to maintain confidence in the currency. Thus, it has an inflation target of 2%; the central bank tends to take actions to curb inflation when it goes above that level and to boost inflation when the level is far below 2%.
3. European Central Bank
Another major central bank that forex traders need to pay attention is the European Central Bank in forex trading. It is responsible for the monetary system of the European Union and the euro currency. The specific responsibilities of the European Central Bank are to formulate monetary policies, conduct foreign exchange, hold currency reserves and authorize the issuance of bank notes etc. The council consists of the six members of the executive board of the ECB, plus the governors of all the national central banks from the 12 euro area countries in order to formulate monetary policies. It is much easier for traders to get the potential movements of the European Central Bank in forex trading for it normally notices traders a lot about the upcoming moves through comments to the press whenever it plans to change its policies. Moreover, traders should know that the ECB strives to maintain the annual growth of consumer prices below 2%. As an export dependent economy, the ECB also tries to prevent against great strength in its currency in forex trading for this may pose a risk to its export market.
4. Bank of Japan
The main responsibilities of the bank is to issue and handle currency and treasury securities, implement monetary policies, maintain the stability of the Japanese financial system and provide settling and clearing services. This one, like most others, does economic research and analysis and gets economic data, which is quite helpful in forex trading. I have mentioned above that the European Central Bank tends to take action to prevent against excess strength in its currency; the Bank of Japan is more interested in preventing an excessively strong currency. To maintain price and the financial system stability, inflation is the central bank’s top focus.