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Competitive Monetary Policy Creating Market Volatility, Distortion

Competitive Monetary Policy Creating Market Volatility, Distortion

2016-04-15 01:54:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • The Federal Reserve's unorthodox policies proved a relative 'success' but that was in an noncompetitive environment
  • With global policy edging to greater extremes and efforts increasingly competitive, problems arise
  • Dependency on accommodation is definitive, confidence in its influence is faltering and volatility is rising

Having trouble trading in the FX markets? This may be why.

Accommodative monetary policy is aimed at returning stability to the markets and promoting economic growth. However, in a global system where the net policy effort grows more extreme; problems are increasing. One of the most troubling developments is the market's skepticism that subsequent rounds of monetary policy will provide meaningful return via growth, capital market advancement or exchange rate relief. Given the dependency investor sentiment has built upon the efficacy of these efforts, doubt is extremely troubling. And, further aggressive efforts look more a lashing out of desperation with greater (detrimental) side effects than meaningful support. Another tangible complication is the competition - whether intentional or not - being stoked by these policy authorities. Market instability and volatility is an inevitable complication that we are already seeing gain an unmistakable foothold. We look closer at the evolving 'risks' of easing policy in today's Strategy Video.

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