The Bank for International
Settlements (BIS) is the central bank for central banks. Located in Basel,
Switzerland, the BlS also acts as the quasigovernment regulator of the
international banking system. It was the BIS that established the capital
adequacy requirements for banks that today underpin the international banking
system.
As the bank to national
governments and central banks, the BIS frequently acts as the market
intermediary of those nations seeking to diversify their currency reserves. By
going through the BIS, those countries can remain relatively anonymous and
prevent speculation from driving the market against them.
Market talk of the BIS being
active in the market is frequently interpreted as significant reserve interest
to buy or sell. Keep an eye out for market rumors of the BIS, but also keep in
mind that the BIS performs more routine and smaller trade execution on behalf of
its clients.
The Group of Seven (G7)
The Group of Seven, or G7, is composed of the seven largest developed economies
in the world: Canada, France, Germany, Italy, Japan, the United Kingdom, and
the United States. The G7 is the primary venue for the major global powers
to express their collective will on relative currency values and the need for
any adjustments. For forex markets, the big guns of the G7 are the hottest game
in town.
Depending on the circumstances,
currency values may be on the agenda for these meetings and the communiqué, the
official statement issued at the end of each gathering, may contain an explicit
indication for a desired shift among the major currencies. lf currencies are
not a hot-button topic, the G7 will include a standard boilerplate statement
that currencies should reflect economic fundamentals and that excessive currency
volatility is undesirable.
Forex markets closely follow the
preparations leading up to the meetings for several weeks in advance. Traders
are looking first to see if currencies will even be discussed, and then to see
which currency or currencies will be on the agenda. The market will generally
have a sense of whether currencies are an issue, and the general feeling of
what the G7 would like to see done. Still, comments from ministers and their
deputies holding the preparatory consultations set the stage for the market’s
expectations and can provoke significant market reactions even before the G7
meets.
The power of G7 statements lies
in the perception that all the participants are in agreement with what is
contained in the communiqué. Most important, it is seen as giving the market a
green light to carry out the G7’s expressed wishes. If the G7 indicates that a
recently weak currency is not reflecting fundamentals, for example, it’s a
signal to the market that the G7 would like to see that currency appreciate.
