Quantitative Easing Explained What Forex Traders Need to Know....

1. Quantitative Easing Explained: What Forex Traders Need to Know. What Is Quantitative Easing Anyway? If you've ever questioned why the currency markets shift suddenly due to a central bank announcement, quantitative easing may be at work. QE is a monetary policy instrument in which Central Banks buy long-term government bonds and other financial instruments to increase liquidity in the economy. Think of it as the central bank turning on the money spigot, but under a controlled process. The ultimate purpose? Strengthen economic activity when other monetary items are no longer effective. Central banks utilise QE to lower interest rates, facilitate borrowing at a lower rate, and incentivise business and consumers alike to once again begin spending and investing. It's not merely about printing money for the sake of printing money! There is always a reason for every purchase. The 2008 financial crisis comes to mind. The Federal Reserve instituted massive QE programs to support crashing markets and try to prevent a total economic collapse. Banks were frozen, credit was running dry, and the Fed needed heavier medicine than simply dropping interest rates.cfd trading broker To make this a little easier to visualise, picture a school's cafeteria running out of money to serve lunch. The principal stepped in and handed out extra vouchers to the students so they could still eat. Think of what central banks do in QE terms in

2. precisely the same way they feed the entire economy, instead of simply the cafeteria. More specifically, this looks like the following: Central Bank → Purchases Assets → Expands Market Liquidity → Stimulates Economy. Some recent examples include the U.S. Federal Reserve's QE programs starting in 2008 or the Bank of Japan's early experiments with QE in the early 2000s. Both situations demonstrate how a central bank turns to QE-type actions once it exhausts conventional policy options. best forex trading broker How QE Works Let's explain the mechanics: when a central bank decides it will use QE, it begins buying assets, typically government bonds. The purchases do inject new money into the financial system. Now, banks have more reserves sitting around, and all that liquidity pushes bond yields lower. Lower yields mean lower borrowing costs for businesses and homebuyers. When banks have large reserves of cash, they're more likely to lend it out. Credit spreads more evenly across the economy. Businesses can borrow to expand. Consumers can finance purchases. The entire economy starts to move again, at least in a theoretical sense. The European Central Bank's Quantitative Easing (QE) program of 2015 is a clear example.