FOREX THEORY
Hawkish and Dovish
Central Banks
We just learned that currency prices are affected a great
deal by changes in a country’s interest rates.
We now know that interest rates are ultimately affected by a
central bank’s view on the economy and price stability, which influence
monetary policy.
Central banks operate like most other businesses in that
they have a leader, a president or a chairman.
It’s that individual’s role to
be the voice of that central bank, conveying to the market which direction
monetary policy is headed. And much like when Jeff Bezos or Mark Zuckerberg
steps to the microphone, everyone listens.
So by using the Pythagorean Theorem (where a² + b² = c²),
wouldn’t it make sense to keep an eye on what those guys at the central banks
are saying?
Using the Complex conjugate root theorem, the answer is yes!
Yes, it’s important to know what’s coming down the road
regarding potential monetary policy changes. And lucky for you, central banks
are getting better at communicating with the market.
Whether you actually understand what they’re saying, well
that’s a different story.
So, the next time Janet Yellen or Mario Draghi are giving
speeches, keep your ears open. Better yet, use the trusty BabyPips.com Economic
Calendar to prepare yourself before the actual speech.
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