15 yrs ago, I sat on a small spot desk. We used to say the Fed (CBs) was in the mkt and was buying or selling dollars. I rarely hear of this anymore...have they stopped? Anyone swinging "yards" here? Have I lost my mind?
i remember this too. this is why you do not hear it anymore. electronic trading allows governments and central banks to intervene through legal non central bank accounts. you will never know the counteryparty. mostly done through futures and other anonymous ways. the days of seeing a red headline on a reuters screen or bloomberg machine saying the fed are intervening are over.
that's like the ultimate inside information no matter what their p&l objectives. their counterparties are screwed...
The CBKs could still conceivably intervene. The last time they did in concert was in 2000 to buy euros. The BoJ is perhaps the last of the active inteventionists, but it has been very quiet. Certain CBKs do use the 'toys', such as EBS and Reuters. When they do, the name is given up. FX is still mainly bilateral and OTC. The BoE, at least until recently, did not trade electronically. In th eold days, rumours were invariably spread that Buba, the Fed or BoJ were in. At times of stress, they only had to ask for a quote for it to have an impact. The market is far bigger now.
15 yrs ago the foreign currency market wasn't a 3+ TRILLION USD market /day. How much money the Fed would have to print to tilt the market just a little bit in his favor? And for how long? And at what cost?
Intervention isn't as difficult as you think, as long as it's concerted. If the Fed wanted to prop the dollar, all they would have to do is call the ECB and probably Canada. Get everyone to buy dollars at the exact same time against their own currency. For maximum effect, wait for periods of low liquidity, like 7PM EST. Or Friday before close, or a holiday, etc. Spot would smash through levels of support/resistance like a tidal wave.