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MONETARY POLICIES

Central Bank Season Heats Up

Understanding Monetary Policy Market Moves

Central Bank, Season Heats Up, Understanding, Market Moves, Monetary Policies, fx trader, forex

When you hear Central Bank uttered in the financial world, what is the first word or phrase that comes to mind? If you have been living under a rock then perhaps the term renders no familiarity and carries no influence on your trading. But for the vast majority of traders and investors, the Central Banks of the world have been responsible for and provided some of the most controversial market movements in the past seven years, with a trend (no pun intended) that looks very likely to continue.

Let’s take a trip down memory lane and review some of the BIG decisions that shaped the Forex Market and global monetary policy. These decisions led to what many experts have coined the currency wars where a country’s central bank adjusts monetary policy in some capacity with the intentions of stimulating a country’s lending, borrowing, spending, growth, etc.  Notable central bank decisions include the following -

US Federal Reserve (Figure 1)

November 2008 - Federal Reserve unveils $800 billion plan to stimulate borrowing and spending

March 2009 - Federal Reserve buys $300 billion in long-term Treasury bonds - QE1

November 2010 - Federal Reserve buys $600 billion in additional bonds - QE2

September 2011 - Federal Reserve cuts interest rate on consumer loans with $400 billion dept-swap

June 2012 - Federal Reserve extends Operation Twist

September 2012 - Federal Reserve launches QE3 by buying mortgage securities

June 2013 - Federal Reserve discusses scaling back in purchases - Taper Talk

April 2014 - October 2014 - Federal Reserve tapers stimulus from $85 billion to $0

Central Bank, Season Heats Up, Understanding, Market Moves, Monetary Policies, fx trader, forex - QE HistoryFigure 1 - US Federal Reserve QE programs relative to the Dow Jones Industrial Average (DJIA)

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