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The Practicality of FX Intervention: Japan to China to Mexico

The Practicality of FX Intervention: Japan to China to Mexico

2016-04-09 00:50:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • Intervention is not uncommon nowadays for monetary policy authorities, but its effectiveness is questionable
  • We separate influence via unorthodox monetary policy from direct intervention on behalf of currency purchases
  • The risk of direct Yen selling may be high, but its influence over pairs like USDJPY can be very limited

See how retail traders are positioning in the majors using the FXCM SSI readings on DailyFX's sentiment page.

As extreme as it may seem, FX intervention is not uncommon. Beyond even the indirect currency influence that modern day (still unorthodox) monetary policy exacts, there are examples of direct intervention on behalf of exchange rates in the recent past. We can separate these efforts into distinct programs and discrete forays into the market. The Swiss National Bank (SNB) and People's Bank of China (PBoC) are good examples of the former. There is clear evidence that these efforts face serious problems over time. However, from those direct and sizable interventions aimed at currency value, the impact may carry even more dramatic limitations. Amid fears/speculation of imminent intervention, we look at the direct interventions on behalf of the Japanese Yen, Chinese Yuan, Swiss Franc, New Zealand Dollar and Mexican Peso - as well as the extent of influence each effort has spanned - in this weekend Strategy Video.

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