What is a primary reason central banks might intervene in the forex market?

Central banks often intervene in the foreign exchange (forex) market primarily to stabilize or increase the value of their own currency. This intervention can occur when a country's currency is experiencing excessive volatility or depreciation, which can negatively impact the economy by affecting inflation rates, import costs, and overall economic stability. By buying or selling their own currency in the forex market, central banks aim to maintain a desired exchange rate level that aligns with their monetary policy goals.

For instance, if a currency is losing value rapidly against other currencies, this could lead to increased costs for imports and higher inflation, which can strain the economy. By intervening, central banks can foster trust in their currency, promote economic stability, and influence inflation expectations, which can ultimately help protect the economic health of the nation.