Central banks, which represent their country's government, play a vital role in the foreign exchange market. Central banks have a large impact on the value of currencies when they conduct open market operations and set interest rates.

Central banks determine the price of a country's native currency on the foreign exchange market. The open market rate is the price of the country's currency. There are different exchange rate regimes, including floating, fixed, and pegged.

The purpose of any central bank action in the currency market is to stabilize or improve a country's economic competitiveness. Currency fluctuations are caused by central banks (and speculators). During periods of long deflationary trends, the central bank may weaken its own currency by producing additional supply, which is then used to buy foreign currencies. Thus, the domestic currency falls, making exports more competitive on the global market.

These strategies are used by central banks to control inflation. This is a long-term indicator for Forex traders.