{"id":63730,"date":"2014-11-14T17:12:17","date_gmt":"2014-11-14T22:12:17","guid":{"rendered":"http:\/\/countingpips.com\/?p=63730"},"modified":"2014-11-14T17:24:03","modified_gmt":"2014-11-14T22:24:03","slug":"do-interest-rates-matter-anymore","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/11\/do-interest-rates-matter-anymore\/","title":{"rendered":"Do interest rates matter anymore?"},"content":{"rendered":"<div id=\"inves-2818358754\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">November 14, 2014<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><div class=\"newsArticleTeaser\"><a href=\"http:\/\/uk.saxomarkets.com\/\" target=\"_blank\"><strong>By Saxo Markets<\/strong><\/a><\/div>\n<div class=\"newsArticleTeaser\"><\/div>\n<div class=\"newsArticleTeaser\"><em><strong>With major central banks issuing detailed \u2018forward guidance\u2019, are interest rates losing their influence on the foreign exchange market?<\/strong><\/em><\/div>\n<div class=\"newsArticleContent\">\n<p>There is a growing distance in the relationship between interest rates and the currency market in the post-2008 credit crisis world. Interest rates in developed markets have stayed at historic lows for an unprecedented period since the crisis and major central banks have all embarked on a &#8216;forward guidance&#8217; as a policy tool.<\/p>\n<p>Through this tool, central banks are relying on detailed communication as a means to offer the market a &#8216;heads-up&#8217; before taking action. Though this increased guidance is a welcome step by central banks to tame volatility and arrest violent shocks to the currency market, it has also curtailed speculation \u2013 a major aspect of foreign exchange trading.<\/p>\n<p><strong>What does this mean for traders?<\/strong><\/p>\n<ul>\n<li>Forward guidance has largely illuminated the need to take huge risks on speculating upon which action a central bank may take; traders now have had to resign to central banks actually telling the market about what action they will take which forces many currency traders to focus less and less on policy meetings.\u200b<\/li>\n<\/ul>\n<ul>\n<li>This does, however, mean lower volatility in the forex market, which was intended by central banks to curtail the speculative approach traders had been taking before policy meetings, which left currencies vulnerable to violent shocks.<\/li>\n<\/ul>\n<p><strong>Your trading approach to interest rates? <\/strong><\/p>\n<p>In this new age of central bank communication, a forex trader may\u00a0need\u00a0to reconsider\u00a0\u200b\u200btheir approach to interest rates. There&#8217;s less need to speculate whether interest rates are going up or down and more need to examine the fundamentals of a country&#8217;s currency and the overriding stance of its central bank on a longer-term perspective.<\/p>\n<p>Interest rates dictate flows of investment. Since currencies are the representations of a country&#8217;s economy, it&#8217;s considered crucial to understand the outlook rather than to speculate on short term fluctuations in it.<\/p><div id=\"inves-270701368\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<p><span class=\"ms-rteFontSize-2 ms-rteFontFace-8\"><em>Former Fed chairman Ben Bernanke\u00a0first\u00a0coined the term &#8220;forward guidance&#8221;\u00a0in December 2012\u00a0when he said\u00a0the central bank\u00a0<\/em><em>would not raise interest rates until the\u00a0unemployment rate in the US\u00a0dropped to at least 6.5%, so long as inflation remained below 2.5%.<br \/>\n<\/em><\/span><\/p>\n<p><strong>More onus on macro data?<\/strong><\/p>\n<p>As such, the onus falls to broader gauges of the relative strength or even weakness of a currency. Macroeconomic indicators need to gain more priority than interest rate meetings as they are more telling of a country&#8217;s fundamental economic position.<\/p>\n<p>By using macro indicators such as employment data, consumer price inflation or the Purchasing Manager&#8217;s Index, a forex trader is relying more on empirical data and information to trade rather than speculation.<\/p>\n<p><strong>Interest rate meetings still matter<\/strong><\/p>\n<p>Even though forward guidance is a transparent communication tool by central banks, it doesn&#8217;t necessarily mean that a central bank can no longer surprise the market. Forex traders now need to spend more time going through policy meetings with a fine toothcomb in order to truly gauge upcoming policy action by central banks. This means more focus on the tone of the language used by the central bank, the meeting minutes, economic forecasts and statements made by policymakers outside of the monthly interest rate meetings.<\/p>\n<p><em><strong>About the Author:<\/strong><\/em><\/p>\n<p>Article by\u00a0<a href=\"http:\/\/uk.saxomarkets.com\/\" target=\"_blank\"><strong>Saxo Markets<\/strong><\/a><\/p>\n<p>Original Article:\u00a0<a href=\"http:\/\/uk.saxomarkets.com\/trading\/markets\/do-interest-rates-matter-anymore\" target=\"_blank\">http:\/\/uk.saxomarkets.com\/trading\/markets\/do-interest-rates-matter-anymore<\/a><\/p>\n<p><a href=\"http:\/\/uk.saxomarkets.com\/trading\/markets\/do-interest-rates-matter-anymore\" target=\"_blank\">\u200b<\/a><\/p>\n<p><strong>Disclaimer:<\/strong>\u00a0This material should be considered as a marketing communication under the Financial Conduct Authority\u2019s rules. Saxo Capital Markets UK Limited (&#8220;SCML&#8221;)<span class=\"ms-rteThemeForeColor-1-0\">\u00a0<\/span>undertakes reasonable efforts to ensure that any information published in this communication is reliable. SCML makes no representation or warranty, or assumes no liability, for the accuracy or completeness of any information contained in in this communication.SCML provides an execution only service and this communication does not take into account any particular recipient&#8217;s investment objectives,\u00a0special investment goals, financial situation, and special needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in a particular manner and SCML assumes no liability for any recipient sustaining a loss from trading in accordance with a perceived recommendation.<\/p>\n<p>Saxo Capital Markets UK Limited is\u00a0authorised and regulated by the Financial Conduct Authority, Firm Reference\u00a0Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.\u200b<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>By Saxo Markets With major central banks issuing detailed \u2018forward guidance\u2019, are interest rates losing their influence on the foreign exchange market? There is a growing distance in the relationship between interest rates and the currency market in the post-2008 credit crisis world. Interest rates in developed markets have stayed at historic lows for an [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-63730","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/63730","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=63730"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/63730\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=63730"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=63730"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=63730"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}