If forex had bosses, they'd be the central banks. They set interest rates, and money flows toward higher returns.
The big eight
| Currency | Central bank |
|---|---|
| USD | Federal Reserve (Fed) |
| EUR | European Central Bank (ECB) |
| GBP | Bank of England (BoE) |
| JPY | Bank of Japan (BoJ) |
| CHF | Swiss National Bank (SNB) |
| CAD | Bank of Canada (BoC) |
| AUD | Reserve Bank of Australia (RBA) |
| NZD | Reserve Bank of New Zealand (RBNZ) |
Expectations rule
Markets move on what's expected next, not just what happens. A rate hike everyone saw coming can make a currency fall if the statement hints it was the last one.
Wick says
One sentence from a central bank chair can move EUR/USD 100 pips. Words are powerful. Fed words are very powerful.
Key takeaways
- Higher rates (or expected hikes) tend to strengthen a currency.
- The rate difference between two countries drives a pair.
- Statements and press conferences can matter more than the decision.