Forex Investment and Currency Trading

The United States

The Department of the Treasury has the legal mandate for all currency matters, from printing the notes and minting the coins to ensuring the soundness of the U.S. dollar in international markets. The secretary of the Treasury is the primary spokesman for the U.S. dollar. The deputy Treasury secretary for international affairs is the hands-on Treasury official responsible for day-to-day currency matters.

When the Treasury secretary speaks on the value of the dollar, or any other currency for that matter, FX markets listen.

The Eurozone

The European Central Bank (ECB) is responsible for both monetary policy and currency matters under the agreement that created the single-currency Euro in 1999. The ECB’s central council is the primary decision-making body; it’s composed of the presidents of the central banks of the 12 participating nations, with the ECB president as the group’s chief policy maker and spokesman.

When the ECB needs to intervene in the market, it can do so by itself, along with the central banks of the member states on its behalf.

However, individual European countries continue to exert influence over currency policy through their finance ministers, who had responsibility for currencies prior to the introduction of the euro and the creation of the ECB. The Eurozone finance ministers meet regularly as a group and frequently weigh in on Forex market developments. There still appears to be great consideration given to the member states’ governments by markets with regard to currency values, with the two largest European economies – Germany and France – wielding the greatest influence. But consensus appears to be the key element in deciding if the euro is too strong or too weak, and a clear majority of member states needs to be on board in opposing market movements before the market will pay attention.

Japan

The Ministry of Finance (MOF) is responsible for currency matters in Japan. The MOF is the most powerful government ministry in Japan and can wield more influence over economic affairs than event he Bank of Japan (BOJ), the central bank. The MOF devotes a great deal of attention to the value of the JPY. The primary day-to-day currency spokesman for the MOF is the vice minister for international affairs. It is not all uncommon for the MOF to issue daily comments on the Forex markets, particularly when volatility increases.

Japan’s economy remains highly export oriented, and the value of the JPY is believed to be influenced by the MOF and kept artificially weak. Throughout the 1980s and early 1990s, artificial JPY weakness was a key trade issue between the United States and Japan. This issue keeps the JPY one of the most politically driven of the major currencies. To avoid accusations of official manipulation of currency rates, the MOF frequently uses proxies to do its bidding. The most common substitute is Kampo, the Japanese postal bank’s pension fund, which has assets well over $1 trillion. So even if the BOJ is not in the market, a Kampo buying order or selling order for several billion dollars can accomplish the same objective.

Great Britain

The Chancellor of the Exchequer (treasury secretary or finance minister) is the individual responsible for the British pound’s fate. The governor of the Bank of England (BOE) also shares responsibility for the pound in a bit of a holdover arrangement form when the BOE became independent from the government in the late 1990s.

The chancellor / BOE generally stay out of currency matters and appear most concerned with the pound’s exchange rate versus the euro, because the bulk of UK trade is conducted with the Eurozne. The story behind that dates back to 1982, when the British pound imploded and was forced to withdraw from the European Exchange Rate Mechanism (ERM), the predecessor arrangement leading up to the euro. So if you’re waiting for the chancellor or the governor to speak up on currency matters, don’t hold your breath.

The United Kingdom is closely aligned with European economies and would be a candidate to join the Eurozone single currency, but nationalism runs deep when it comes to getting rid of the pound. The official line of government was that no decision on joining the euro would be made without conducting a national referendum.

Switzerland

The Swiss National Bank (SNB) is charged with responsibility for the Swiss franc along with setting monetary policy. The SNB is most concerned with the Swiss franc’s exchange rate versus the euro, because nearly 80 percent of Swiss trade is conducted with Eurozone nations. The SNB has been known to speak up in opposition to CHF strength or weakness whenever the EUR/CHF exchange rate approaches extreme levels. Instead of engaging in open-market intervention, in the past the SNB indicated that it may use interest rates to prevent excessive Swiss franc weakness, which is especially troublesome because it can import inflation and undermine SNB monetary policy.