Influence of Central Banks on Financial Markets
Currently Central banks of the world are a powerful instrument of monetary regulation. This function has a default effect on fluctuations of asset prices in financial markets. Changes in the policy of any central bank, the economy of which has a noticeable weight in the scale of the world economy, lead to corresponding, quite abnormal reactions of financial markets.
U.S. Federal Reserve: Lords of Dollars
The most influential on this issue, of course, is The Federal Reserve System (FED). FED is completely independent in its economic policy decisions. During the FED chairman's speeches, the markets react very violently to his statements, especially when the question is about changes in interest rates.
ECB: A focus on price stability
The main policy of the European Central Bank is price stability. The euro is "invested" in the economy of all member states of the European Union, so the policy ECB has a direct impact on the course of further political and economic changes, both throughout the Eurozone and in each state individually. ECB representatives often set the market in motion with their statements, moreover, such official statements may be very different from the general local psychology of the markets.
The policies of these two most powerful central banks govern most of the working capital of the financial markets.
Bank of England: traditionally high rates
A tangible role is also played by Central Bank of England (BOE). The high interest rates in England are of great interest to global speculators, which by default has an impact on overall economic performance. England is a recognized global financial center. The main offices of the largest investment leaders are located here, and very strict English legislation effectively regulates the financial activities of banks, stock exchanges, and individual companies.
Bank of Japan: Foreign Exchange Intervention Policy
Particularly different from other central banks Bank of Japan (BOJ). The difference is the unexpected and powerful currency interventions. In 1998, Japan passed a law that gave the central bank independence from the government.
Japan's fiscal year ends on March 31. By this time, a large amount of foreign currency is usually converted into yen to bring the balance sheet up, causing it to rise in value. Years of keeping interest rates relatively low have led to a skew in banking, but still, Japan's banks hold a place of honor among the world's banking leaders.
Central banks have an undeniable influence on financial markets, and only their reasonable policy can help to stabilize exchange rates, the organization of favorable conditions for each side of the financial industry and the global market system as a whole.