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Forex market moving factor / Monetary policy

Monetary policy

The important factor in the forex market is the monetary policy, which is executed by each central bank, especially, the US monetary policy is most important.

The Japanese Yen has been fixed at 360 for a US dollar for a long time. The Nixon shock in August, 1971, however, brought about the sharp fall in US dollar toward 308-ish, and the Carter shock in October, 1978 made further drop below 180-ish. Every time these emergencies were coming up, the US administration was forced to take the relevant actions to protect the value of US dollar. For example, the Carter administration entered the untouchable area, so, they sold the SDR which issued by IMF for preparation of emergency and withdrew some reserve trashes. Eventually, the forex swap network was completely equipped, and it followed that the forex rate, USD-JPY recovered to 197-ish in a month, and this remedy resulted in 220-ish in April, 1979.

Before long, the US got suffering from the trade deficit due to higher valuation of US dollar. Called by Mr. Baker who was in charge of US Treasury, G5 financial ministers council was held at the Plaza hotel in New York in September, 1985. The Plaza accord was announced that is cooperating to appreciate the value of their own currencies against US dollar. The coordinated intervention based on this accord made the value of US dollar pushing down about half as much as previous. For example, the forex rate of USD-JPY became 120-ish from the 240-ish in half an year.

The key person of note

Thus, the change of the monetary policy greatly affects to the forex markett, and then, all the players in the forex market are focusing on the comments from the key person. It is important to recognize the minor difference in their words for capturing the turning point of the forex market.


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