So I was wondering what everyone’s thoughts on what appears to be the development of divergence in global monetary policy was? It seems that central banks are starting to be able to focus on fundamentals as various crises are coming to an end. This looks like it’s going to lead to different central banks taking different approaches (versus the almost universal easing of the crisis era).
The RBNZ has been hawkish for several months now, and just raised rates for a third time. The latest meeting minutes from the BOE hint at a possible rate hike before year’s end. The Fed appears intent on ending QE3 by year’s end and beginning rate increases sometime in 2015.
Meanwhile, the BOJ has made clear that they have no intentions of tightening monetary policy until the economy is well into their target of 2% inflation. Most notably, the ECB recently began to encourage economic growth quite aggressively through rate decreases, including a negative deposit rate, and has hinted that Euro-style QE isn’t out of the question.
Personally, I see this divergence as a good thing. I think that it will lead to less uncertainty in FX markets. I think that investors should be able to open positions more confidently when currency pairs are clearly trending as the result of fundamental monetary policy.
What do you guys think?