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Why Governments Intervene in Markets and How It Impacts Forex and Crypto Traders
Aug 7, 2025
Consider you’re a forex trader, and the currency pair you’ve been tracking suddenly goes haywire. You check the news to find that a government agency has intervened in the market to stabilize the economy. Just like that, your trading strategy is thrown off course. In this scenario, the unpredictable behavior of the market isn’t so much the problem; the unexpected government intervention has thrown your trading plan into chaos. Understanding economic interdependence and government actions and in markets can help you prepare for and adapt to their surprising, yet predictable, interventions.
This guide will explore why governments intervene in markets and how it impacts forex and crypto traders. To help you with these objectives, GoMoon offers an AI-powered economic calendar that tracks government market intervention so you can know what to expect before trading.
Table of Contents
Why Governments Intervene in Markets
1. To Stabilize the Economy During Crises
When markets crash, governments don’t just sit back. They act fast to prevent a full-blown collapse, through bailouts, interest rate cuts, or emergency funding.
Real Example
During the 2008 global financial crisis, the U.S. government injected $700 billion into struggling banks. The Fed slashed interest rates to nearly 0% to boost lending and prevent collapse.
Impact on Traders
Forex traders who shorted the USD during panic phases profited as the dollar weakened.
Crypto traders saw Bitcoin rise as a hedge against broken trust in traditional banks.
2. To Control Inflation and Deflation
Inflation eats away at spending power. Deflation slows down economic growth. Governments step in by adjusting interest rates to keep inflation in check and avoid an economic slowdown.
Real Example
In 2022–2023, U.S. inflation peaked at 9.1%. The Fed raised interest rates from 0.25% to over 5% to control it.
Impact on Traders
Forex traders who longed USD (e.g., USD/JPY) profited as the dollar strengthened.
Crypto traders saw a drop in prices as liquidity tightened and borrowing costs rose.
3. To Manage Currency Exchange Rates and Trade Competitiveness
Countries may actively weaken or stabilize their currency to boost exports or maintain control over trade dynamics.
Real Example
China’s central bank regularly intervenes in the yuan’s value to make Chinese goods cheaper in global markets.
Impact on Traders
Forex traders shorting CNY during devaluation periods saw strong returns.
Crypto traders in China leaned into Bitcoin as a workaround to strict currency controls.
4. To Prevent Financial System Collapse
When key institutions like banks or major industries are at risk, governments often step in with guarantees or rescue packages to stop widespread panic.
Real Example
In March 2023, Silicon Valley Bank (SVB) collapsed due to a liquidity crisis. The U.S. government guaranteed all deposits, and the Fed provided emergency liquidity to avoid contagion.
Impact on Traders
Forex traders experienced USD volatility, weakening during panic, then stabilizing.
Crypto traders saw Bitcoin spike as a haven from traditional finance instability.
5. To Protect Domestic Industries from Foreign Competition
Governments use trade barriers like tariffs and subsidies to shield local businesses from cheaper foreign alternatives.
Real Example
The U.S.–China trade war led to new tariffs on billions of dollars' worth of goods, disrupting global trade and causing significant forex volatility.
Impact on Traders
Forex traders profited by reacting to USD/CNY volatility during tariff escalations.
Crypto traders in China saw increased interest in decentralized assets as a hedge.
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• Protectionism vs Free Trade
Who Gives Governments the Right to Intervene in Markets?
Constitutional & Legislative Authority
Most democratic governments derive their power from constitutions that allow them to regulate commerce, protect citizens, and maintain economic stability. For example, the U.S. Constitution empowers Congress to regulate interstate and international trade, forming the legal basis for tariffs, subsidies, and financial regulations. In many countries, national legislatures pass laws that explicitly allow government agencies (e.g., central banks, finance ministries, securities commissions) to take action in times of economic distress or inflation.
Central Bank Independence (With Mandates)
Central banks like the U.S. Federal Reserve or the European Central Bank are often independent from political influence — but they are legally mandated to maintain price stability, control inflation, and ensure full employment. When they raise or lower interest rates or intervene in currency markets, they’re operating under this legal authority. Traders monitoring these institutions know their decisions are not arbitrary — they’re guided by frameworks like the Federal Reserve Act or the ECB’s Monetary Policy Mandate.
Emergency Powers & Crisis Legislation
In times of economic crisis (such as the 2008 recession or COVID-19), governments often invoke emergency powers granted under special legislation. These laws allow for bailouts, stimulus programs, and regulatory overrides that might not be used during normal times. For example, the U.S. government used the Emergency Economic Stabilization Act of 2008 to inject over $700 billion into the financial system during the housing crash.
International Agreements & Trade Bodies
Governments also act through global institutions like the IMF, World Bank, or WTO. These bodies establish frameworks for currency stabilization, debt relief, or trade dispute resolution. When countries intervene in their currency or impose trade barriers, they often do so within limits defined by these institutions.
Public Trust & Democratic Legitimacy
Ultimately, a government's legitimacy to intervene also rests on the consent of the governed. Through elections, public consultations, and legal transparency, most interventions (especially in democratic systems) reflect the public’s demand for stability, fair markets, or protection against systemic risk.
How Government Intervention Affects the Forex and Crypto Markets
How Government Intervention Affects the Forex Market
The foreign exchange market connects economies globally, and government policies can impact exchange rates and market liquidity. Governments influence forex markets through central bank policies, direct currency manipulation, trade policies, and financial regulations.
Central Bank Actions & Interest Rate Policies Drive Currency Strength
Central banks control monetary policy, using interest rates and money supply to influence their national currency’s value. Raising interest rates strengthens a currency by attracting foreign investors seeking higher returns. Lowering interest rates weakens a currency because it discourages investment and makes borrowing cheaper.
Example: The Federal Reserve’s Rate Hikes & USD Strength (2022-2023)
The U.S. Federal Reserve raised interest rates from 0.25% to over 5% to control inflation. Higher rates made U.S. assets more attractive, strengthening the U.S. dollar (USD). EUR/USD, GBP/USD, and AUD/USD fell sharply as investors moved capital into USD-denominated assets.
Impact on Forex Traders
Traders who longed the USD (buying USD/JPY or shorting EUR/USD) profited as the dollar strengthened. Emerging market currencies like TRY, ZAR, and BRL depreciated, hurting traders in those regions.
Example: Bank of Japan’s Intervention to Stabilize the Yen (2022)
In 2022, the Japanese yen (JPY) weakened as the Bank of Japan kept interest rates low while the U.S. raised rates. Japan’s central bank directly intervened in forex markets to prevent further depreciation, buying trillions of yen to strengthen its currency. USD/JPY dropped from 150 to 130 in weeks, catching many traders off guard.
Impact on Forex Traders
Traders anticipating Japan’s intervention profited from the JPY rebound. Those who stayed long on USD/JPY without risk management suffered losses.
Currency Pegs & Exchange Rate Manipulation Impact Forex Markets
Some governments fix their currency’s exchange rate instead of letting it fluctuate naturally. This is known as a currency peg, where a country ties its currency to a stable foreign currency, like the U.S. dollar (USD). Pegged currencies provide stability for trade and investment but require governments to intervene constantly to maintain the peg.
Example: The Hong Kong Dollar (HKD) is pegged to the U.S. Dollar (USD).
Some countries manipulate exchange rates to make exports cheaper and increase trade competitiveness.
Example: China’s Yuan (CNY) & Exchange Rate Management
China actively manages the yuan’s value to maintain a trade advantage. When China’s exports slow, the People’s Bank of China devalues the yuan to make Chinese goods cheaper for foreign buyers. This manipulation disrupts forex markets and causes volatility in USD/CNY, EUR/CNY, and commodity currencies like AUD.
Impact on Forex Traders
Traders short the yuan (CNY) during devaluation periods to profit from China’s intervention. A weaker yuan boosts demand for Chinese exports, affecting commodity-linked currencies (AUD, NZD, CAD).
Example: The Swiss Franc (CHF) Unpeg Shock (2015)
For years, Switzerland pegged its currency (CHF) to the euro (EUR) to maintain stability. In January 2015, the Swiss National Bank (SNB) suddenly removed the peg, causing the EUR/CHF pair to crash by 30% in minutes. This was one of the biggest shocks in forex history, wiping out trading accounts and causing brokers to go bankrupt.
Impact on Forex Traders
Traders who were short EUR/CHF made huge profits. Those who did not use stop-loss orders were liquidated.
Government Bailouts & Market Stability Affect Currency Liquidity
When financial crises hit, governments bail out failing banks and corporations to prevent economic collapse. Bailouts often weaken a currency in the short term but help restore confidence in the long run.
Example: U.S. Government Bailouts in 2008 (Lehman Brothers Collapse)
The U.S. government bailed out major banks during the 2008 financial crisis, pumping trillions of dollars into the economy. The dollar weakened initially due to the increased money supply but later strengthened as the economy recovered.
Impact on Forex Traders
Traders who shorted the USD in 2008 initially profited. Those who owned the USD in 2009-2010 benefited as the U.S. economy rebounded.
How Government Intervention Affects the Crypto Market
Governments do not directly control cryptocurrencies but influence them through regulations, bans, taxation, and stablecoin policies.
Crypto Regulations & Bans Disrupt Market Sentiment
Many governments fear crypto’s decentralized nature, as it threatens traditional financial systems. Banning or restricting crypto trading and mining reduces market liquidity. Unclear regulations create uncertainty, discouraging institutional investment.
Example: China’s Bitcoin Mining Ban (2021)
In May 2021, China banned Bitcoin mining, causing BTC’s price to crash from $60,000 to $30,000 in weeks. The hash rate dropped, forcing miners to relocate to other countries.
Impact on Crypto Traders
Traders who shorted BTC after the announcement profited. Those who panicked and sold at the bottom missed the recovery.
Stablecoin Regulation Affects Crypto Market Liquidity
Stablecoins like USDT (Tether) and USDC (USD Coin) are widely used in crypto markets. Governments regulate stablecoins to prevent financial risks, and cracking down on them reduces liquidity in crypto markets.
Example: The U.S. Treasury’s Stablecoin Scrutiny (2022-2023)
The U.S. government investigated Tether (USDT) over concerns about its reserves. This caused temporary de-pegging, creating panic in crypto markets.
Impact on Crypto Traders
Traders who diversified into multiple stablecoins (DAI, USDC) avoided risk. Those who relied solely on USDT faced liquidation risks during instability.
Taxation & Capital Controls Restrict Crypto Adoption
Many governments impose capital gains taxes on crypto profits to regulate the industry. Some countries ban crypto transactions to prevent capital flight.
Example: India’s 30% Crypto Tax (2022)
The Indian government introduced a 30% tax on crypto gains, reducing trading activity. Many Indian traders moved to offshore exchanges to bypass regulations.
Impact on Crypto Traders
Traders who held crypto in tax-friendly jurisdictions avoided high taxes—those who failed to comply faced legal risks.
GoMoon Uses AI To Decode Economic Events For Smarter Trading
GoMoon transforms economic calendar data with AI-powered insights for smarter trading decisions. Our platform analyzes global events and rates their market impact on a scale of 1 to 10, helping you understand how they'll affect various assets. We've packed everything traders need: live economic event streaming, custom notifications, and historical event replay with TradingView charts. What sets us apart is our comprehensive approach to event analysis.
Whether you're tracking the impact of major economic announcements or comparing forecast data with actual outcomes, GoMoon provides straightforward, actionable insights. You can personalize your calendar, stream live meetings directly on the platform, and analyze historical events like the dot-com bubble or the COVID-19 crash to understand market reactions better. GoMoon clarifies the complex world of economic events for traders seeking data-driven decisions. Get started for free to get AI-powered economic insights today.
How Traders Can Adapt to Government Intervention
Track Government Economic Policies & Regulatory Changes in Real-Time with GoMoon.ai
Monitoring central bank policies, trade restrictions, regulatory shifts, and economic indicators that affect forex and crypto markets is crucial for adapting to government intervention.
How GoMoon.ai Helps Traders Prepare for Economic Policy Changes
GoMoon.ai is an AI-powered financial intelligence platform that helps traders monitor central bank decisions, interest rate changes, inflation reports, and regulatory policies influencing forex and crypto markets.
Customizable Economic Calendar
Traders can filter events by country, currency, and asset class, ensuring they focus only on relevant market-moving events. For example, a forex trader trading EUR/USD can track ECB announcements and EU inflation data to anticipate euro volatility.
AI-powered market Impact Scores
Each event is rated from 1 to 10 based on its potential to cause market volatility. Example: A U.S. Federal Reserve interest rate hike with a score of 9/10 signals that forex traders should prepare for USD strength.
Instant Alerts for Policy Announcements & Crypto Regulations
Traders can receive real-time alerts when governments release new policies affecting fiat or crypto markets. For example, crypto traders tracking SEC lawsuits against Binance or Coinbase can adjust positions before the market reacts.
Example: How Traders Used GoMoon.ai to Prepare for USD Strength (2022)
GoMoon.ai assigned a 9/10 impact score to the Federal Reserve’s aggressive interest rate hikes in 2022. Forex traders who longed USD/JPY and shorted EUR/USD in advance profited from the USD rally. Crypto traders anticipated Bitcoin’s decline as higher interest rates reduced market liquidity.
How to Prepare for Economic Policy Changes
Governments and central banks regularly announce economic policies that impact global markets. Forex and crypto traders should monitor statements from the U.S. Federal Reserve (Fed), → controls the strength of the U.S. dollar (USD). European Central Bank (ECB) → Affects EUR/USD movements. People’s Bank of China (PBoC) → Regulates the Chinese yuan (CNY) and impacts Bitcoin trading in Asia. Securities and Exchange Commission (SEC) → Regulates crypto markets and determines whether specific tokens are securities.
Example: How Traders Anticipated the Bank of Japan’s (BoJ) Currency Intervention (2022)
The Japanese yen (JPY) weakened to 150 against the SD as the BoJ kept interest rates low. GoMoon.ai alerted traders to the BoJ’s potential intervention, and those who shorted USD/JPY before the intervention profited from the JPY’s sudden recovery.
Hedge Against Government Actions in Forex and Crypto Markets
Hedging helps traders protect their capital from sudden market moves caused by interest rate changes, currency interventions, and regulatory actions.
Forex Traders: Hedging Against Interest Rate Changes & Currency Peg Adjustments
Interest rate changes and currency devaluations create sharp price swings in forex markets. How to hedge? If a central bank is expected to raise interest rates, traders hedge by going long USD/JPY and shorting EUR/USD. If a currency peg (like HKD/USD) is at risk, traders use options or inverse trades to reduce exposure.
Example: How Traders Hedged Against the Swiss Franc Unpeg (2015)
In January 2015, Switzerland suddenly removed its currency peg to the euro (EUR), causing EUR/CHF to drop by 30% in minutes. Traders who hedged using put options or held USD/CHF short positions profited, while others faced massive losses.
Crypto Traders: Hedging Against Regulatory Crackdowns & Stablecoin Risks
Crypto markets are heavily influenced by government regulations, making hedging essential. To hedge, diversify stablecoin holdings (USDT, USDC, DAI) to protect against de-pegging risks. Use decentralized exchanges (DEXs) if centralized exchanges face regulatory pressure.
Example: How Traders Hedged Against USDT Depegging (2022)
When Tether (USDT) faced scrutiny over its reserves, its price dropped below $1. Traders who moved funds into USDC and DAI avoided the de-pegging risks.
Diversification to Reduce Policy Risks in Forex and Crypto Markets
Diversification protects traders from unexpected government interventions by spreading investments across multiple assets, markets, and trading platforms.
Forex Traders: Holding Multiple Currency Pairs
Traders should avoid overexposure to a single currency or region. To balance risk, traders can also hold positions in EUR, JPY, and emerging market currencies instead of trading USD pairs.
Example: How Traders Diversified During the Russia- Ukraine War (2022)
The Russian ruble (RUB) initially collapsed during the war but later recovered. Traders with a mix of USD, CHF, and JPY minimized losses from Russia’s currency collapse.
Crypto Traders: Balancing Between CeFi & DeFi
Traders should diversify between centralized (CeFi) and decentralized (DeFi) platforms to avoid regulatory risks. Example: If Binance faces regulatory trouble, traders can move assets to Uniswap, Curve, or Aave to maintain access to trading and liquidity.
Example: How Traders Protected Funds After the FTX Collapse (2022)
In November 2022, FTX collapsed due to fraud and insolvency. Traders who diversified funds across Binance, Kraken, and DeFi wallets avoided losing everything.
GoMoon Uses AI To Decode Economic Events For Smarter Trading
GoMoon transforms economic calendar data with AI-powered insights for smarter trading decisions. Our platform analyzes global events and rates their market impact on a scale of 1 to 10, helping you understand how they'll affect various assets. We've packed everything traders need: live economic event streaming, custom notifications, and historical event replay with TradingView charts. What sets us apart is our comprehensive approach to event analysis.
Whether you're tracking the impact of major economic announcements or comparing forecast data with actual outcomes, GoMoon provides straightforward, actionable insights. You can personalize your calendar, stream live meetings directly on the platform, and analyze historical events like the dot-com bubble or the COVID-19 crash to understand market reactions better. GoMoon clarifies the complex world of economic events for traders seeking data-driven decisions. Get started for free to get AI-powered economic insights today.
Related Reading
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• Impact of Trade War on Global Economy
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Use Our AI-powered Economic Calendar Tool for Free Today
GoMoon's platform analyzes economic calendar data, rating events from 1 to 10 according to their predicted impact on various assets. This helps traders understand how these events affect the markets and provides actionable insights for smarter trading decisions.
How GoMoon Helps You Prepare for Economic Events
GoMoon helps you track the impact of major economic announcements on the markets. You can compare forecast data with actual outcomes to see how events affect various assets, enabling you to make informed trading decisions.
How GoMoon Lets You Customize Your Calendar
GoMoon helps you personalize your economic calendar to fit your trading style and preferences. You can set custom notifications for upcoming events, stream live meetings directly on the platform, and analyze historical events like the dot-com bubble or COVID-19 crash to better understand market reactions.
Related Reading
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• Hedging Tools
• Macroeconomic Analysis
• How to Prepare for Economic Collapse
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• How to Prepare for a Stock Market Crash
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• What Happens to the Stock Market During a Recession