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Originally Posted by stucros
I would agree that the central banks have a big psychological effect but they also control huge reserves these days. China and Japan together have almost 2.5trillion usd and that’s massive even in FX. And when you say central banks haven’t been able to control fx rates you’re probably thinking about the BoE or Italy in the early 90’s but in 2003/4 Japan quite successfully kept its currency low. The ability to buy your currency is limited by your reserves (BoE gave up half way through) but to sell your currency or devalue your currency is not really limited.
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Actually, I was thinking about the BoJ, but they were just one of many that tried to sway the markets with limited to no luck at times. It used to be that they attempted to bully the market through sheer volume. I think they figured out back in the 90s that they couldn't do that any more. If the market was determined, they couldn't stop it.
Remember when USD/JPY made it's all time low? The BoJ tried to intervene early on, but it wasn't until the market really got clearly ahead of itself and overextended that they finally got it turned around.
After that it seems like the central bankers got better at picking their spots and not trying to take the market on head-to-head.
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