Central Bank | Forex Exchange Rates


Central bank watching is sometimes referred to as the new art of ‘Kremlinology', a term applied to Western analysts during the cold war who were trying to figure out what was really going on behind closed doors at the Kremlin. Even small changes in wording, the removal of certain people from the public and the way articles were arranged in Pravda were scrutinised. The question is whether these signals were intentional and indeed they were probably often misinterpreted by analysts.

Forecasting capabilities have not improved

The uncertainty is how much value we can actually derive from central bank watching. It has been best practice among central banks for years to provide information about monetary policy in order to increase its effectiveness.

However, what about the art of forecasting financial and macroeconomic variables? In a working paper from the Swiss National Bank (SNB), the authors Thomas Lustenberger and Enzo Rossi argue, based on a large sample of data, that increased central bank communication does not improve the accuracy of private forecasts.

Furthermore, they argue that more frequent communication increases both forecast errors and their dispersion. So, perhaps ‘speech is silver, silence is golden' when it comes to forecasting on the back of central bank speeches.


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the world interest rates table

The World Interest Rates Table reflects the current interest rates of the main countries around the world, set by their respective Central Banks. Rates typically reflect the health of individual economies, as in a perfect scenario, Central Banks tend to rise rates when the economy is growing and therefore instigate inflation.

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What is the Jackson Hole Symposium?

It is an annual economic policy symposium held in Jackson Hole, Wyoming. Organized by the Federal Reserve Bank of Kansas City since 1978, the three-day gathering is designed as a forum for central bankers, policy experts, and academics. This year’s topic on focus was “Fostering a Dynamic Global Economy”, and it lasted from August 24th to August 26th.

Key speeches from Janet Yellen, Chairwoman of the US Federal Reserve, and Mario Draghi, President of the European Central Bank, were widely expected as a roadmap of their economic policies for the next months.

Draghi's speech at the Jackson Hole

European Central Bank President Draghi is speaking at the Federal Reserve Bank of Kansas City’s Economic Symposium at Jackson Hole and the euro has popped higher on the day following comments around the global and European recovery.

Yellen's speech not a game changer at Jackson Hole Symposium

Fed Chair Yellen, who is the first major speaker ahead of ECB's President Draghi at today's Jackson Hole Symposium, has disappointed the markets so far with nothing pertaining to a bias on monetary policy one way or the other and markets have reacted positively so far.


It is evident that during these past weeks, centrals banks have acted, as expected, as major player in the Forex markets. But, what is a central bank? Do you really know what are its functions?. We’ve gathered some educational content to answer all your questions about central banks policies and their important role on the forex markets. The Main Players In The Forex Market: The role of central banks tends to be diverse and can differ from country to country, but their duty as banks for their particular government is not trading to make profits but rather facilitating government monetary policies (the supply and the availability of money) and to help smoothen out the fluctuation of the value of their currency (through interest rates, for example).The majority of developed market economies have a central bank as their main monetary authority. It is evident that during these past weeks, centrals banks have acted, as expected, as major player in the Forex markets. But, what is a central bank? Do you really know what are its functions?.
The main tool of central banks is the interest rate, from which rates by commercial banks are set. By raising and lowering interest rates, the central bank de facto controls the country's economy and causes severe movements in the financial market. If we look at the distribution of central banks, depending on who is the owner, we find that there are three groups. Central Bank (CB) in private ownership (an example is - Switzerland or the USA), many other CB are in the hands of the state and the last option is called mixed ownership (eg. Japan). Banks. They handle Forex transactions in high volumes that often determine the future movements of financial markets. Currently, the five largest banks in the world hold almost 55% of the order volumes of the financial market. The minimum transaction in the interbank platforms is 10 million, the equivalent of 10 lots. Banks, of course, are trading without leverage, and utilize a variety of trading strategies from High Frequency Trading, latency trading, and arbitrage trading to long-term trading strategies.
The majority of developed market economies have a central bank as their main monetary authority. The role of central banks tends to be diverse and can differ from country to country, but their duty as banks for their particular government is not trading to make profits but rather facilitating government monetary policies (the supply and the availability of money) and to help smoothen out the fluctuation of the value of their currency (through interest rates, for example). Central banks hold foreign currency deposits called "reserves" also known as "official reserves" or "international reserves". This form of assets held by central banks is used in foreign-relation policies and indicates a whole lot about a countries' ability to repair foreign debts and also indicates a nation's credit rating. While in the past reserves were mostly held in gold, today they are mainly held in Dollars. It is common for central banks nowadays to possess many currencies at once. No matter what currencies the banks own, the Dollar is still the most significant reserve currency.

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