Talking Points:
• Rate hikes, rate cuts and stimulus changes lead to changes in capital positioning
• Some of the largest trends in the 'majors' are founded on monetary policy
• Competitive monetary policy is often referred to as currency wars
There are few fundamental themes that carry an all-encompassing influence over the FX market. Risk trends is one such topic, but it has recently struggled for identity. Yet, during this period of dissociated convictions, the FX market has still generated impressive trends in the past year to 18 months. The source of that momentum is divergent monetary policy programs. Sometimes labeled 'currency wars', a natural divergence between relative hawkish and dovish efforts will lead to clear leaders and laggards in the FX market. For traders that want to know what is driving the markets to see how far the trends will extend, this is a critical aspect of the market to learn.
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