It Looks Like the Be­gin­ning of the End of Cen­tral Bank Eas­ing

The Economic Times - - Commodities Plus -

Luke Kawa

Traders are now tak­ing the long view on cen­tral bank eas­ing, shift­ing fo­cus to which mon­e­tary pol­i­cy­mak­ers will be the first to change course and with­draw stim­u­lus, ac­cord­ing to Bank of Amer­ica Mer­rill Lynch FX strate­gist Athana­sios Vam­vakidis. The euro-area, Ja­pan, Nor­way, New Zealand, and Swe­den are the five ma­jor de­vel­oped economies in which cen­tral banks have eased pol­icy this year — and by some fi­nan­cial met­rics, they don’t have much to show for it. In all of th­ese in­stances, cur­ren­cies have strength­ened rela- tive to the US dol­lar in the wake of more ac­com­moda­tive mon­e­tary pol­icy. A pos­si­ble coun­ter­point: it’s not nec­es­sar­ily that fight­ing cen­tral banks has worked, but that the Fed's dovish sur­prise in March has meant more to th­ese cur­rency pairs than eas­ing. That ar­gu­ment might not fully pass the smell test as most of th­ese do­mes­tic stocks mar­kets have also de­clined since mon­e­tary pol­icy be­came more ac­com­moda­tive.

So with cur­ren­cies get­ting stronger and eq­ui­ties fall­ing, Vam­vakidis says “po­si­tion­ing for a sce­nario in which some cen­tral banks give up eas­ing is worth the cost.” — Bloomberg

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