Government Interventions and Forex

As a forex trader, you need to realize that the currency markets are influenced and sometimes even directly manipulated by governments. The prospects of government intervention to strengthen or weaken a currency are real. Intervention is most likely when currency prices reach extremes in value. When a currency is too strong, it threatens economic growth by making a country's exports more expensive. Countries often depend on exports to increase their economic growth. When a currency is too weak, it creates a potential for inflation and an increase in interest rates. In either case, extremes are what bother governments. There are examples of both kinds of interventions, defined as a time when there is official purchase or sales of currencies through a central bank.

The finance ministers in the group of 7(also now called the G8 since Russia joined) nations provide very useful information about global economic events and sentiment regarding the forex markets. When the G7 meets, it issues a statement that provides an authoritative overview of the status of the world economy and also contains very carefully phrased language designed to impact the currency markets. The forex market waits for these announcements.

More recently, another group called the G20 has become important in regard to currency markets. The G20 represent the finance ministers of the following countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States and the European Union.

It was formed in 1999 and may become an important player in forming strategies for improving the global economy. In 2004 the G20 agreed to reduce Iraq debt significantly. Forex traders should monitor

Are forex price movements manipulated?

the meetings and documents of this group. A good way to keep on top of G20 meetings is this website:

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