I keep coming across the terms ‘dovish’ and ‘hawkish’ in trading discussions and news articles, but I’m a bit lost on what they really mean.
Is it only related to Fed policy, or does it apply to other central banks as well?
Dovish means central banks prefer lower rates to encourage growth. It often weakens the currency.
Dovish banks print more money hawkish banks tighten up
Dovish means central banks favor lower rates to promote borrowing and spending, which makes money cheaper. Hawkish is the opposite, focusing on raising rates to combat inflation. It’s crucial for traders to monitor any tone shifts, as they can lead to significant currency swings.
Dovish focuses on economic growth and low rates.
Dovish means central banks prefer low rates to promote jobs and economic growth instead of fighting inflation. Hawks want to raise rates to control inflation, even at the cost of growth. This concept applies to all major central banks, not just the Fed. In trading, dovish statements often lead to a weaker currency, while hawkish statements strengthen it. Pay close attention to central bank speeches, as shifts in tone can quickly impact the markets.
Dovish means central banks keep interest rates low to boost jobs and economic growth rather than fight inflation.
Hawkish is the opposite - they’d rather raise rates to control inflation, even if it hurts growth.
This applies to all major central banks, not just the Fed. The ECB, BOJ, and Bank of England all get labeled this way too.
Fed speak is key to understanding this.
When they use terms like “patient” or “accommodative,” that’s dovish and signals low rates will stick around. If they start mentioning “inflation concerns,” they shift to hawkish territory, hinting at rate hikes.
Look at the ECB in 2019; they went super dovish and the euro dropped against the dollar. This trend applies to other banks too. For example, the BOJ has been dovish for a long time, which is why the yen has stayed weak.