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ECB and Fed Monetary Shifts Have Outsized Global Influence

ECB and Fed Monetary Shifts Have Outsized Global Influence

Nick Cawley, Senior Strategist


What's on this page

USD and EUR Weighed on by Central Bank Monetary Policy U-Turns

  • Fed and ECB policy decisions have global consequences.
  • Further policy loosening will steer USD and EUR lower.

Q3 2019 USD and EUR Forecasts and Top Trading Opportunities

Lower for Longer as Central Banks Continue to Ease

A new report by ratings agency Fitch – Broadest Shift in Global Monetary Policy Direction Since 2009 – highlights the recent U-turns made by global central banks as economies across the world continue to battle with tepid growth and below target inflation. The report highlights a ‘pronounced shift in the balance of policy direction across geographies in the last six months’ with more than a third of the central banks, in the BIS database, easing over the last six months. This monetary shift, from tightening to loosening, is due to the deterioration in global growth prospects, rising concern over trade policies, a slump in manufacturing and trade and ‘muted movements in global inflation trends over the last 12-18 months.’ The Fitch report highlights the Fed’s policy U-turn towards easing in early 2019 as having had a global impact, while the recent ECB signals of renewed loosening, after having stopped bond purchases in December 2018, ‘could also have had a strong impact on global policy settings.’

Hawkish vs Dovish: How Monetary Policy Affects FX Trading

As central banks ease, their currencies, in normal circumstances, weaken as the interest rate differential against other currencies narrows. However as other central banks are now cutting rates in lock-step, the overall differential between various currency pairs remain little changed. With major central banks looking to weaken their currencies further, to try and negate perceived and real trade imbalances, the race to the bottom continues. It remains to be seen if further monetary loosening will have the desired effect or if new, extraordinary policies need to be unleashed to prevent the current global downturn.

For FX traders this means a renewed focus on central banks and policy member speeches. Currency pairs will see more volatility when central banks do not react as expected or if policy members unexpectedly reveal revised forecasts, internal disagreements and fresh stimulus measures.

The DailyFX Calendar keeps you fully informed of all central bank meetings and data releases while the DFX website reports up-to-the minute developments and news across a range of currencies.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on interest rates and have central banks finished?? You can let us know via the form at the end of this piece or you can contact the author at or via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.