We all know as currency traders that Central Banks Money Policy is instrumental in controlling the currency markets. Central Banks have the unique power of creating money out of thin air unlike any other bank. This creation of money gives them the power to control the money supply. Another instrument that Central Banks have is the control of interest rates. With these two intruments, Central Banks are tasked with the task of controlling inflation and unemployment in the economy. Whenever the Central Bank changes the interest rates the currency markets move big time. In the same manner, with more money supply the currency starts depreciating.
The People’s Bank of China is adding stimulus, the ECB doing similar, while the Fed and Bank of England have moved to tighten.