Talking Points:
- The ECB meets today; the Fed and BoJ next week; and the RBA and BoE the week after that
- Relative monetary policy still matters, but the depths necessary for FX drive is hitting more extreme levels
- As the effectiveness of accommodative policy falters, currency wars will destabilize global risk trends
See the DailyFX Analysts' 3Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.
Aggressive and even competitive monetary policy among the world's largest central banks is still one of the primary catalysts for FX volatility and trend development. And, as the efforts grow increasingly dramatic and experimental against an uncertain economic and financial backdrop; this theme will likely shake more elemental investor sentiment in the foreseeable future. Before dependency on stimulus triggers an uncontrollable bout of risk aversion, however, there is still mileage to track out of the rivaling global efforts.
Perhaps drawing the greatest contrast, the Federal Reserve is the only one of the major central banks that is actively pursuing a tightening agenda - even if it is very slow. Such a contrast not only marks a competitive yield advantage for the Dollar but it bolsters appeal due to its perceived stability compared to those witnessing increasingly aggressive loose measures failing to catch traction. Those that are floundering in excessive accommodation include the ECB and BoJ. Both have dove into extreme stimulus and even experimental negative rates. The former is likely to be reticent to push more to show its influence fading, but the latter may have little option.
Meanwhile, the RBA and RBNZ are likely to pursue more traditional outlets of policy with considerable potential for rate cuts at their next meetings. The reactions may be less remarkable than past years, but the straightforward implementation and reaction carries its own appeal. For the Bank of England, Brexit has substantially changed its bearing and where we should focus. Wild cards to watch are the People's Bank of China (PBoC) and Swiss National Bank (SNB). Both are difficult to measure through non-standard methods and their efforts have certainly come far off the standard tracks. We discuss the challenges and likely moves of the largest central banks - along with respective currency implications in today's Strategy Video.
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