Hawkish vs. Dovish Central
Banks
Yes, you’re in the right
place.
Tonight’s match puts the
L.A. Hawks up against the N.Y. Doves.
You’re in for a treat.
Wait, what?!
Whoops sorry, wrong
subject.
We really just meant hawks
versus doves, central bank hawks versus central bank doves that is.
Central
bankers can be viewed as either hawkish or dovish, depending on how they
approach certain economic situations.
Central bankers are
described as “hawkish” when they are in support of the raising of interest
rates to fight inflation, even to the detriment of economic growth and
employment.
For example, “The Bank of
England suggests the existence of a threat of high inflation.” The Bank of
England could be described as being hawkish if they made an official statement
leaning towards the increasing of interest rates to reduce high inflation.
Dovish central bankers, on
the other hand, generally favor economic growth and employment over tightening
interest rates. They also tend to have a more non-aggressive stance or
viewpoint regarding a specific economic event or action.
And the winner is…. It’s a
tie!
Well, sort of.
You’ll find many a banker
“on the fence”, exhibiting both hawkish and dovish tendencies. However, true
colors tend to shine when extreme market conditions occur.
"Work hard and achieve anything. Aim higher. Dream bigger. Fear less. Love more. Stay
blessed. Trust your struggle. It’s now or never.."
By Zig Ziglar.
"The greatest enemy of knowledge is not ignorance, it
is the illusion of knowledge."
By Stephen Hawking.
Hawkish vs. Dovish Central
Banks
Yes, you’re in the right
place.
Tonight’s match puts the
L.A. Hawks up against the N.Y. Doves.
You’re in for a treat.
Wait, what?!
Whoops sorry, wrong
subject.
We really just meant hawks
versus doves, central bank hawks versus central bank doves that is.
Central
bankers can be viewed as either hawkish or dovish, depending on how they
approach certain economic situations.
Central bankers are
described as “hawkish” when they are in support of the raising of interest
rates to fight inflation, even to the detriment of economic growth and
employment.
For example, “The Bank of
England suggests the existence of a threat of high inflation.” The Bank of
England could be described as being hawkish if they made an official statement
leaning towards the increasing of interest rates to reduce high inflation.
Dovish central bankers, on
the other hand, generally favor economic growth and employment over tightening
interest rates. They also tend to have a more non-aggressive stance or
viewpoint regarding a specific economic event or action.
And the winner is…. It’s a
tie!
Well, sort of.
You’ll find many a banker
“on the fence”, exhibiting both hawkish and dovish tendencies. However, true
colors tend to shine when extreme market conditions occur.
"Effort only fully releases its reward after a person
refuses to quit."
By Napoleon Hill.
Hawkish and Dovish Central
Banks (Part 3)
Much like how the market
reacts to the release of other economic reports or indicators, forex traders
react more to central bank activity and interest rate changes when they don’t
fall in line with current market expectation.
It’s getting easier to
foresee how a monetary policy will develop over time, due to an increasing
transparency by central banks.
Yet there’s always a
possibility that central bankers will change their outlook in greater or lesser
magnitude than expected. It’s during these times that marketing volatility is
high and care should be taken with existing and new trade positions.
"When obstacles arise, you change your direction to
reach your goal, you do not change your decision to get there."
By Zig Ziglar.
Hawkish and Dovish Central Banks (Part 2)
While the central bank chairman
isn’t the only one making monetary policy decisions for a country or economy,
what he or she has to say is only not ignored, but revered like the gospel.
Okay, maybe that was a bit
dramatic, but you get the point.
Not all central bank officials
carry the same weight.
Central bank speeches have a way of
inciting a market response, so watch for quick movement following an
announcement.
Speeches can include anything from
changes (increases, decreases or holds) to current interest rates, to
discussions about economic growth measurements and outlook, to monetary policy
announcements outlining current and future changes.
But don’t despair if you can’t tune
in to the live event. As soon as the speech or announcement hits the airwaves,
news agencies from all over make the information available to the public.
Forex analysts and traders alike
take the news and try to dissect the overall tone and language of the
announcement, taking special care to do this when interest rate changes or economic
growth information are involved.
