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Central Bank Influence Waning Through Transparency, Credibility

Central Bank Influence Waning Through Transparency, Credibility

John Kicklighter, Chief Strategist

Talking Points:

  • Relative monetary policy has proven one of the most productive and influential market moving themes
  • Direct or implicit intervention carries market sway so far as transparency and credibility allow
  • Where the PBoC is very opaque but still carries heavy credibility, the ECB is transparent but losing its impact

See the DailyFX Analysts' 1Q forecasts for the Dollar, Euro, Pound, Equities and Gold as well as our favorite 2016 trading opportunities in the DailyFX Trading Guides page.

Monetary policy has been employed for much more than targeting economic objectives as of late - perhaps through circuitous methods to reach stated mandates. Yet, whether targeting inflation, exchange rates or capital market volatility; even the world's largest central banks may see their influence over economy and market wane. There is strong evidence to suggest that control is already starting to slip from key policy group's hands. We have already seen regular warnings from central banks like the RBA and RBNZ over their 'high currencies' lose market sway long ago. More recently, the transparent and exceptionally large programs from the ECB and BoJ have lost traction on the fronts most traders expected it to play out. Meanwhile, the Chinese central bank (the PBoC) has obfuscated its efforts and agenda; and yet, its influence remains pointed. How and when do monetary policy capabilities breakdown? Will the Fed and PBoC falter as the ECB and BoJ have? We discuss the transparency and credibility factoring into the influence of monetary policy in today's Strategy Video.

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