Now that most major central banks have given their policy statements, it’s time for me to give y’all a forex snapshot of where they stand these days. To spice things up a bit, I’ve picked a few pop songs to illustrate their current biases. Hey, this old man knows the hits!
FOMC: “Quit Playing Games with My Heart” by Backstreet Boys
I gotta admit, Big Pippin‘s boyband obsession is rubbing off on me but I really can’t think of a better song that sums up the Fed’s rate hike bias than “Quit Playing Games with My Heart” by Backstreet Boys. As I’ve mentioned in my April FOMC statement review, Fed head Janet Yellen has been playing coy with the markets and giving mixed signals on when they might tighten monetary policy.
On one hand, Fed officials are saying that the recent slowdown in the U.S. economy is just temporary. On the other hand, policymakers have also sounded downbeat about their outlook for employment, spending, and growth. Now put those two hands on your head then start belting out this song’s bridge “Don’t leave me hanging here forever. Oh baby, baby this is not right,” along with the rest of the market watchers confused about the FOMC’s plans.
ECB: “The Climb” by Miley Cyrus
ECB Governor Mario Draghi has been increasingly hopeful about seeing the light at the end of the tunnel, as he keeps pointing to signs of a “sustained recovery” in the euro zone. And after all the heartbreak that the region has been through in the past few years, I wouldn’t be surprised if Draghi starts wistfully singing “I can almost see it, that dream I’m dreaming…” every time the euro zone sees economic improvements.
Of course Draghi noted that there are still plenty of challenges to be faced and that it’s always gonna be an uphill battle, but he continues to urge the central banks and governments of each member nation to do their part. It ain’t about how fast they get there. It ain’t about what’s waiting on the other side. It’s the climb!
BOE: “Don’t Stop Believin'” by Journey
It’s not that BOE Governor Carney is like a city boy who took the midnight train goin’ anywhere. It’s just that BOE policymakers never really seemed to waver from their optimistic stance even though recent U.K. economic reports have been printing dismal results.
The latest BOE meeting minutes turned out to be a bit of a surprise, as MPC members confirmed that they are still open to hiking interest rates and that they believe annual inflation could reach their 2% target next year. Actual economic figures paint a different picture, with consumer spending and GDP growth falling short of expectations. Nonetheless, Carney and his men have Journey’s “Don’t Stop Believin'” on loop and are holding on to the feelin’ that the U.K. economy is in for a strong rebound.
SNB: “Disturbia” by Rihanna
So far this year, the SNB has dropped a bombshell on the forex markets, not just once, but twice! It seems that SNB head Thomas Jordan has a habit of making unscheduled announcements that put franc pairs in a frenzy… like a thief in the night to come and grab you. Just ask those forex traders who woke up to negative account balances after the SNB’s surprise decision to scrap the currency peg in January!
In their latest shocker, the SNB decided to reduce their exemptions from negative deposit rates, which basically means that more banks and financial institutions will get charged for leaving cash in the central bank’s vault. Jordan has also been jawboning the currency in his recent interviews, reviving speculations of potential SNB intervention. If that happens, don’t say Rihanna didn’t warn you “Watch out, you might just go under. Better think twice. Your train of thought will be altered.”
That’s too much singing for now! If there are any songs you’d like to add to this mix, feel free to share ’em in our comments section. Stay tuned for the next part of my forex snapshot on central banks’ monetary policy biases! (See what I did there?)