A central bank is a financial institution that is responsible for managing the monetary policy of a country or a group of countries. Central banks are typically responsible for regulating interest rates, controlling inflation, and maintaining financial stability.
Central banks play a crucial role in the forex market as they can influence the value of a country’s currency through their monetary policy decisions. For example, if a central bank raises interest rates, it can cause the value of the country’s currency to appreciate relative to other currencies.
Central banks also hold significant amounts of foreign currency reserves, which they use to intervene in the foreign exchange market to stabilize their currency’s value. This can involve buying or selling currencies to influence their value relative to their own currency.
Some examples of major central banks include the Federal Reserve in the United States, the European Central Bank, the Bank of Japan, and the Bank of England.