Target Zone Policies by OECD/IMF/BIS:
Plaza Accord, 5 %
Louvre Accord, 10 %
EMS Treaty, 15 %
Monetarists' Consensus, 15 %
Actual Medium Term Target Zones by Central Banks (Fed, ECB, BoJ, BoE, BoC , RBA, RBNZ)
Based on Measurement by Time-Series Interest Rate Differential-Based Currency Band
Central Banks' Consensus:
Sterilization to Central Bands/Central Parity to Slower Strengthening/Weakening
Participants to Time Series Interest Rate Differential-Based Currency Band Methodology:
KRW , HKD, SGD, ILS, NOK , SEK , DKK, HUF , MXN, ZAR
Participants from Emerging Market Central Banks:
CNY , BRL , RUB, INR , IDR
Participants' Currencies Settled by CLS Bank ( CLS Group Holdings AG), regulated by Fed
Carry trading and trend following trading activities are interior the medium term target zones and the short term target zones, to include FX-linked debt security trading activity. They are the world's largest capitalized investment managers and their trading activity.
The trend of the medium term exchange rate target zone is the medium term monetary trend and the trend of the short term exchange rate target zone is the short term monetary trend by monetarists. Oftenly quoted as medium term price stability and short term price stability by central banks to the public for easier to understand.
Under the policy, if FX prices to move out of the upper or lower ceilings then the relevant central banks are obligated to undertake central banking market sterilization to return the FX prices to be fluctuated back into interior the upper or the lower ceilings, the credibility of central banks.
By rule of thumb, FX prices move from their quilibrium exchange rate at economic fundamental (disequilibrium) to their equilibrium exchange rate at interest rate differential (equilibrium) in accordance to equilibrium exchange ratet theory. The exchange rate movement from "disequilibrium" to "equilibrium" is the "medium term exchange rate target zone". And, at "equilibrium" the global central banks or world's largest capitalized carry traders and momentum traders, sterilize the FX prices back to central band/central parity and to establish "new disequilibrium level".
Another way to explain the FX prices fluctuation is at lower ceiling of the negative interest rate differential currency pairs move to central band/central parity and up to upper ceiling. At upper ceiling they are sterilized back to central band/central parity to establish new lower ceiling, AND at upper ceiling the negative interest rate differential currency pairs move to central band/central parity and down to lower ceiling. At lower ceiling they are sterilized back to central band/central parity to establish new upper upper ceiling.
According to Fed working technical papers, the central band/central parity oftenly aligned and realigned to match current economic fundamental.
Central bank policy changes on interest rate result the changes on the interest rate differential structure and the changes result the alignment of both lower and upper ceilings to upward or to downward by the direction on the changes of their interest rate differentials.
The changes are dynamic and self-driven and self-adjustment by the changes on the interest rate differential structure.
Many research papers available from global central banks on the macro and micro news volatility. The macro and micro news' volatility is "ignored" due to the fact the wide (width) of target zones ranging from 1000 PIPs to 1500 PIPs and more. The macro and micro news' volatility oftenly for profit and loss for news traders.