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Verbal intervention

Officials talking a currency up or down with pointed language about the exchange rate, without spending any reserves, often as a warning before real intervention.

There is a recognised escalation ladder in the language. Watching with interest is mild; watching with a sense of urgency is firmer; describing moves as excessive, one-sided or disorderly, and saying that all options are on the table, is close to the edge of central-bank-intervention itself.

It is cheap and repeatable, which is also its weakness. Repeated warnings without action lose their effect, and traders eventually treat them as a free option to keep pushing until something is actually sold.

Because the reaction is immediate and headline-driven, verbal intervention is a recurring source of the sudden two-way moves and spread-widening that catch stops on otherwise quiet sessions.

Example: an official calls recent currency moves rapid and one-sided. The pair drops 60 pips in a minute, then recovers 45 of them over the next hour once no actual flow appears.

Related: central-bank-intervention, spread-widening, economic-calendar, fx-reserves

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Bid-ask spread in an order bookSell orders stacked above buy orders with a gap between the best of each.SELLERS (asks)50.0690050.051,40050.0460050.011,10050.002,30049.99800spread = 0.03BUYERS (bids)
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.

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