Glossary · Forex

Central bank

The institution that issues a currency and sets monetary policy, including interest rates — for example the Fed, the ECB or the Bank of Japan.

By Sky Trade editorial teamUpdated November 5, 2026

A central bank manages a currency: the Federal Reserve for the US dollar, the European Central Bank for the euro, plus the Bank of England, the Bank of Japan, the Swiss National Bank and others. Its main tools are the policy interest rate, the size of its balance sheet and its communication.

Beginners underrate the communication part. Central banks move currencies not only with decisions but with words: press conferences, meeting minutes, speeches, even a single phrase about the future path of rates. Markets try to anticipate policy, so a change in tone can matter more than the decision itself.

Most central banks have a mandate centred on price stability, so inflation data is the clearest guide to what they may do next. Some also weigh employment or financial stability.

Around scheduled decisions, prices on the affected pairs can spike in both directions within seconds. A short-expiry trade opened just before such an announcement is close to a coin toss with a payout below 100%. The economic calendar lists the dates, and what moves currency prices explains the mechanics.

Example

The ECB leaves rates unchanged, but its president says further cuts are not on the table. EUR/USD jumps 45 pips during the press conference rather than at the decision itself.

Learn more in the academy

What moves currency prices: rates, inflation, jobs and risk mood
The main drivers of exchange rates explained with examples: interest rates, inflation, employment, GDP, risk sentiment, commodity currencies and safe havens.

Related terms

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