Central Bank Roundup: Hawks vs. Doves – Part II

Monetary policy biases tend to play a huge role in long-term forex trends so I’ve decided to give y’all a rundown of which major central banks are feeling hawkish, which ones are in the dovish camp, and which ones are stuck in limbo. In my previous article, I’ve already covered those in #TeamDoves so this time let’s see where the rest of the group is standing.

Federal Reserve (Fed)

central bank hawkSay what you want about Fed Chairperson Yellen playing coy about the timing of their “liftoff” but there’s no denying that the U.S. central bank is still on track to hike interest rates sooner or later. Even though the U.S. economy has had its fair share of hits and misses in the past few months, it is still outpacing the rest of its peers in the developed world!

The latest FOMC minutes indicated that some policymakers are still worried about tightening too soon, as financial market troubles in Greece and in China might weigh on the rest of the global economy. Fed officials seem inclined to wait for more data to confirm that growth is picking up steam, labor market conditions are improving, and inflation is moving closer to their target.

Bank of England (BOE)

BOE Governor Carney brought his troops over to the hawkish camp when he said during the recent Inflation Report hearings that the “point at which interest rates may begin to rise is moving closer” mostly due to the ongoing developments in the U.K. economy. For one, wage growth has been very impressive, as rising average weekly earnings could allow consumers to take better advantage of stagnating domestic price levels.

Minutes of the latest BOE monetary policy meeting revealed that hawkish members aren’t quite ready to call for rate hikes just yet, but MPC member Martin Weale hinted that he might vote to increase rates by August. For now, BOE officials might continue to keep close tabs on employment trends and spending data to see if positive wage inflation is translating to stronger domestic economic activity.

Bank of Japan (BOJ)

The worst of the BOJ’s nightmares seems to be over, as central bank officials have no longer been grumbling about the downturn in consumer spending spurred by the sales tax hike last year. BOJ Governor Kuroda and his fellow policymakers have actually been highlighting the pickup in exports and the potential rebound in inflation, based on the minutes of their recent meeting.

In his testimony this week, Kuroda added that consumer prices could eventually hit the central bank’s 2% target by next year, dismissing the possibility of further easing. Supporting this upbeat outlook is BOJ official Takahide Kiuchi who has been voting to taper asset purchases to 45 trillion JPY in the past policy meetings.

European Central Bank (ECB)

Greek debt drama aside, ECB Governor Draghi and his men could’ve probably enjoyed better days since the euro zone economy has actually been seeing gradual improvements. Of course the ECB isn’t even remotely close to tightening monetary policy anytime soon, but the central bank might not need to lower interest rates or increase bond purchases either.

Of course it might still be a little too early to tell how the harsher austerity measures in Greece could impact the region’s growth prospects, but analysts believe that this will just cause a teeny tiny dent. Forex market watchers seem more interested to see the potential repercussions on the euro zone’s financials, which has also been a major market theme driving the shared currency’s trends.

In a nutshell, we’ve got the Fed and the BOE toasting marshmallows over at the hawkish camp while the BOJ and ECB are still tossing and turning in central bank limbo. Do you think these central banks will change their stance anytime soon?