When the central bank enters the spot forex market to buy or sell forex in order to stabilize the country's currency, usually when supply or demand forces are unbalanced.
Influence on exchange rates in the foreign exchange market when exchange rates are not fixed by law; i.e., a central bank buys its country's currency with foreign currencies to drive its currency up in value; to drive it down, a central bank sells its currencies in return for foreign currencies.
Central banks sometimes buy and sell currencies in order to manipulate exchange rates. A central bank buys its country's currency with foreign currencies to drive its currency up in value; to drive it down, a central bank sells its own currency in return for foreign currencies. In 1992 the value of the pound plummeted following intense selling of sterling by currency speculators. The Bank of England intervened, using almost all of its foreign currency reserves to protect the pound's value. The Bank eventually capitulated, the pound fell out of the Exchange Rate Mechanism and the episode irreparably damaged John Major's government.