The organization that monitors and maintains the United States currency supply is the Federal Reserve. Commonly known at the Fed, this group was established by Congress in 1913.

 

A Washington D.C.-based Board of Governors, twelve larger regional banks, and many smaller affiliated institutions make up the Fed. Fed policies often have a profound effect on forex trading as it relates to the US dollar and it’s global significance.

 

The Fed influences the US currency supply in a variety of ways. One of their main powers is in decreasing or increasing the amount of cash in circulation. The Fed purchases and sells government securities to primary traders; this strategy helps them bring more Federal Reserve Notes into circulation and also helps remove surplus paper money from the supply. The Fed also cooperates closely with the US Mint when making decisions about whether to print or to destroy paper money.

 

Individuals involved with FX trading always have a strong stake in the fate of interest rates; in the US, these rates are influenced by the Fed. The Fed’s default rate is a major factor in determining the nationwide prime interest rate, which can influence activity on forex trading platforms. By changing the default rate at which it loans money to other banks, the Fed indirectly increases or decreases yields from interest-assuring assets. Investor behavior and market trends can both be affected by such changes.

 

A good forex broker or trader will often pay close attention to the actions of the Fed. When determining overall trade balance between two currency markets, money supply is a key factor. Forex trading in USD is directly affected by shifts in this trade balance as well as shifts in interest rates.

 

The United States Federal Reserve is an important central bank in FX trading since the USD is still one of the world’s major currencies. Good forex brokers and traders will also pay attention to the announcements and actions of other nations’ central banks, including the European Central Bank, the Bank of England and the Bank of Japan.

 

Check out more of our resource pages to read up on more basic FX trading economic indicators, such as the Consumer Confidence Index or the Business Inventory report.