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RockstarMarkets
All glossary
Forex

Dirty float

Officially floating exchange rate, but the central bank intervenes opportunistically to influence the level. Most EM currencies in practice.

What it means

A dirty float (managed float) is a regime where the central bank lets the exchange rate adjust to market forces but intervenes when moves are 'disorderly' or politically inconvenient. Distinct from a free float (no intervention, Fed/ECB/BoE) and from a peg (commitment to defend a level). Most EM currencies operate as dirty floats: Brazil, India, Russia, Turkey, Indonesia.

Why it matters

Dirty-float currencies have a hidden second layer: in addition to fundamentals, you're trading the central bank's intervention reaction function. Intervention threshold, instrument choice (spot vs swap vs verbal), and policy reversal signals all become part of the trade. Misreading the central bank's tolerance level can mean fighting the intervention rather than positioning around it.

How to use it

For each dirty-float currency, identify (1) the historic intervention triggers (% move, pace, political pressure), (2) the instruments used (spot intervention, FX swaps, rate hikes), (3) the recent intervention episodes and their outcomes. Use these to estimate where the next intervention is likely to come.

Take it further

Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.

Ask Rocky