The Federal Reserve Board (FED) is responsible for making the monetary policy of United States. FED sets and implements the monetary policy through its Federal Open Market Committee (FOMC). The voting members of FOMC are the seven governors of FED plus five presidents of the district reserve banks. Eight meeting of FOMC are held every year. These meetings are widely watched by the analyst for interest rate announcements and changes in growth expectations.
FED has a high degree of independence in setting the monetary policy. FED has the mandate for long run price stability and sustainable economic growth. FED uses the monetary policy to control inflation, unemployment and balanced growth. The most important tool used by FED is its Open Market Operations.
Open market operations involve FEDs sale or purchase of government securities that includes treasury bills, notes and bonds. In increase in FEDs purchases lowers the interest rates while selling of these securities raises the interest rate.
Federal Fund Rate is the key policy target of the FED. It is the interest rate at which the banks lend overnight to one another in the overnight interbank market. The primary interest rate that is affected by these operations is the Federal Fund Rate. The market then adjusts the other short term and long term interest rates accordingly. FED does not directly sets the Federal Fund Rate. It establishes a target rate through the open market operations.
The other main pillar of economic policy is the fiscal policy. Who controls the fiscal policy? The governments in almost all the countries! Fiscal policy means the amount of taxes and government spending for a given year. The US fiscal policy is in the control of US Treasury. In fact it is the US Treasury that actually determines the US Dollar policy.
For example, US Treasury can give instructions to the New York Federal Reserve Board to intervene in the forex markets by actually buying or selling US Dollars if the US Treasury feels that the US Dollar is under or overvalued. Therefore, you should also try to watch the US Treasury views as changes to that view is very important for the currency markets.
Over 90% of all currency deals involve the US Dollar. The heavily traded currency pairs in the global currency markets are EUR/USD, USD/JPY, GBP/USD and USD/CHF. These currency pairs represent the most frequently traded currency pairs in the global markets. As you can see, all these currency pairs involve US Dollar on either side of the pair. So the most important economic data for the global currency markets is the US Dollar fundamentals.
The relationship between Gold and US Dollar is very important for you to understand. There is an almost perfect negative correlation between the US Dollar and the gold prices. The US Dollar moves in opposite direction to the gold. This inverse relationship stems from the fact that gold is measured in US Dollars.
When US Dollar depreciates due to global economic uncertainty like the present, gold appreciates. Gold is commonly viewed as the ultimate safe haven commodity by the investors all over the globe. You must know that the gold prices are going up right now. - 29866
FED has a high degree of independence in setting the monetary policy. FED has the mandate for long run price stability and sustainable economic growth. FED uses the monetary policy to control inflation, unemployment and balanced growth. The most important tool used by FED is its Open Market Operations.
Open market operations involve FEDs sale or purchase of government securities that includes treasury bills, notes and bonds. In increase in FEDs purchases lowers the interest rates while selling of these securities raises the interest rate.
Federal Fund Rate is the key policy target of the FED. It is the interest rate at which the banks lend overnight to one another in the overnight interbank market. The primary interest rate that is affected by these operations is the Federal Fund Rate. The market then adjusts the other short term and long term interest rates accordingly. FED does not directly sets the Federal Fund Rate. It establishes a target rate through the open market operations.
The other main pillar of economic policy is the fiscal policy. Who controls the fiscal policy? The governments in almost all the countries! Fiscal policy means the amount of taxes and government spending for a given year. The US fiscal policy is in the control of US Treasury. In fact it is the US Treasury that actually determines the US Dollar policy.
For example, US Treasury can give instructions to the New York Federal Reserve Board to intervene in the forex markets by actually buying or selling US Dollars if the US Treasury feels that the US Dollar is under or overvalued. Therefore, you should also try to watch the US Treasury views as changes to that view is very important for the currency markets.
Over 90% of all currency deals involve the US Dollar. The heavily traded currency pairs in the global currency markets are EUR/USD, USD/JPY, GBP/USD and USD/CHF. These currency pairs represent the most frequently traded currency pairs in the global markets. As you can see, all these currency pairs involve US Dollar on either side of the pair. So the most important economic data for the global currency markets is the US Dollar fundamentals.
The relationship between Gold and US Dollar is very important for you to understand. There is an almost perfect negative correlation between the US Dollar and the gold prices. The US Dollar moves in opposite direction to the gold. This inverse relationship stems from the fact that gold is measured in US Dollars.
When US Dollar depreciates due to global economic uncertainty like the present, gold appreciates. Gold is commonly viewed as the ultimate safe haven commodity by the investors all over the globe. You must know that the gold prices are going up right now. - 29866
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano's Forex Signals free. Discover a revolutionary Forex Robot Trading System!
